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April 20, 2015 - Earnings Season Is Still Young: Here Are The Facts

| April 20, 2015
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Events in China and Europe triggered a modest worldwide sell-off last week, and lackluster corporate earnings in the U.S. contributed to market doldrums. For the week, the S&P 500 fell 0.99%, while the Dow and the NASDAQ both lost 1.28%.[1]

Investors sent stocks lower early in the week as they grappled with revenue growth problems in first quarter earnings reports. Nearly three-quarters of the S&P 500 companies that have reported earnings so far have beat profit expectations, but fewer than half of those companies have exceeded revenue expectations.[2] These results mean that firms are overcoming weak demand by carefully managing their expenses. Even so, cost cutting has its limits if sales don't eventually pick up.

However, earnings season is still young, and several big-name U.S. firms are scheduled to report this week. Once firms such as Morgan Stanley [MS], Amazon [AMZN], Boeing [BA], and General Motors [GM] release their data, investors may have a better view into whether markets will snap back from last week's fall.

U.S. investors got nervous last week when fears that Greece will exit the euro (the so-called Grexit) rose again after negotiations faltered between Greek leaders and creditors. A Greek exit from the euro would likely have serious consequences for the rest of the Eurozone. Both sides must come to an agreement soon if Greece is to avoid defaulting next month on loans. In response to the tension, bond yields on Greek debt rose and European stocks suffered their biggest fall since the middle of January.[3,4]

Meanwhile, new stock trading rules in China sparked more investor concerns. Chinese regulators introduced new rules banning some kinds of high-margin trading. Higher margins put traders at risk of greater losses if stock markets drop. China wants to protect an equity market that may be overheating and an expanding economy that may be cooling off.[5]

This week, investors are looking forward to a heavy flood of earnings reports as first-quarter earnings season kicks into high gear. Though it's too early to predict overall earnings, the tough growth picture - largely due to headwinds from the strong U.S. dollar, weak overseas growth, and low oil prices - may make it hard for companies to beat their revenue expectations.

ECONOMIC CALENDAR:

Wednesday: Existing Home Sales, EIA Petroleum Status Report
Thursday: Jobless Claims, PMI Manufacturing Index Flash, New Home Sales
Friday: Durable Goods Orders

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Rising gas prices nudge inflation up. The consumer price index, an indicator of inflation, increased 0.2% in March, thanks to higher oil and gas prices, although it's still down 0.1% for the past 12 months. The slight rise suggests inflation may start heading toward the Federal Reserve's 2.0% target, if the strong U.S. dollar doesn't stand in its way.[6]

Consumer sentiment rises. An early measure of consumer confidence was higher in April than in March, surpassing economists' expectations and indicating that Americans may be more optimistic about their prospects this quarter.[7]

Homebuilders feel more confident. An index that tracks expectations of future home sales reached its highest level of the year in April, slightly beating expectations. Job growth and low interest rates are likely contributing to homebuilder optimism about the housing market.[8]

Retail sales rebound in March. After a slow start to the year, retail sales rose 0.9% in March as Americans went shopping. Higher motor vehicle, furniture, and clothing sales show that the consumer sector is still strong, potentially raising first quarter economic growth numbers.[9]


These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

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  1. http://goo.gl/2973fC
  2. http://www.reuters.com/article/
  3. http://www.foxbusiness.com/markets/2015/04/17/
  4. http://www.bloomberg.com/news/articles
  5. http://www.bloomberg.com/news/articles/2015-04-17/
  6. http://abcnews.go.com/Business/wireStory/
  7. http://www.bloomberg.com/news/articles/
  8. http://www.businessinsider.com/
  9. http://www.foxbusiness.com/economy-policy/2015/04/14/
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