David Rosenberg: Why you should ignore the hysteria over a ‘profits recession’

If you\'re loaded for bear, find a different reason than the phantom profits recession.

There is borderline hysteria among market watchers over a \”profits recession.\”

Analysts’ average estimate for Q1 operating EPS for the S&P 500 has swung from 5.3 per cent year-over-year growth at the turn of the season to -2.8 percent now. Quite simply, the bar continues to be lowered.

Maybe that\’s a good thing since in periods when estimates get hammered, EPS growth ends up coming in 3 to 5 percentage points over the lowballed estimates heading into earnings season. And, go figure, the marketplace typically rebounds. So far, 19 companies in the S&P 500 have reported earnings and somehow 16 of them have were able to beat expectations.

This is how the game is played, enjoy it or not, so let\’s look underneath the hood.

Looking at it sector by sector, things don’t seem as bad as they might appear

Energy sector salary is slated to plunge 63.6 per cent year over year within the first quarter – no wonder overall earnings are shrinking. But strip out energy, and earnings are expected to show a not-too-hot/not-too-cold 5.4-per-cent gain on only a 2.8-per-cent revenue stream.

Looking at it sector by sector, things don’t seem badly as they might appear. For example, financial sector profits are seen rising 10.9 percent in Q1. Revenue development of 1.9% seems low, but that’s actually double a year ago.

Industrials may be constrained through the strong U.S. dollar, but even so, earnings are poised for 7.4-per-cent development in Q1.


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