Will the US Earnings Season Boost Markets?
The always hotly-awaited US earnings season is just around the corner, with the first flux of updates due in from next week.
A series of positive statements from a range of US firms could provide welcome relief from a number of rather less rosy economic indicators and announcements. As a result of the recent weak indicators, fears of a double-dip recession have been aroused, and global markets have tumbled.
Markets on the slide
After apparently sailing serenely away from the 5000 level and slowly but steadily upwards, the UK’s blue-chip FTSE 100 index has been jolted by the choppy waters of ongoing eurozone debt concerns and worries over the European banking system, coupled with some disappointing economic data from the US and China. Last week the FTSE fell 208.38 points – a sizeable 4.1% – and down through the 5000 mark to close at 4838.09.
The poor recent performance of the world’s stock markets hasn’t been confined to these shores alone though. Over the Atlantic, the Dow Jones was understandably hit by poorly received US data last week – the index slid by 4.7% after weak employment, home sales and consumer confidence figures. The decline has been on the cards for a while – during this year’s second quarter to the end of June, the S&P 500 fell close to 12%, which translated at its weakest showing since the final three months of 2008. [1] A couple of weeks earlier the Nikkei fell 4% in a day – its biggest such fall in 14 months.
Can positive earnings data boost sentiment?
In the first quarter of 2010 US firms performed particularly well, with a series of better-than-expected figures from the likes of computer chip-maker Intel and banking giants Goldman Sachs and Morgan Stanley. Investors will now hope for much of the same as the second-quarter reporting season kicks off next week.
In a recent survey of analysts by Thomson Reuters, second-quarter figures are expected to be 27% up year-on-year. [2] If these expectations are proved correct, it will be a third quarterly period in succession which has seen results improve compared to the same three months a year previously.
The upbeat forecasts will certainly be welcomed by traders looking for a tangible sign that the current downtrend can be halted. However the prospects for growth are aided by the discouraging data last year, when the US economy was deeply mired in recession. Some investors may therefore be weighing up just how healthy companies’ balance sheets really are, in view of the weakness witnessed a year ago.
Whatever the outcome of firms’ results over the next few weeks, many investors will be closely eyeing statements on expectations for the rest of the year to gauge whether any financial growth potential is likely in the longer term. Look out next week for updates from, among others, Alcoa, Intel and Google, plus banking giants JP Morgan Chase, Bank of America and Citigroup.
Take a position
Whether you feel that a round of upbeat US earnings can kick-start a global share price recovery, or that the reception will be muted in the face of mounting macroeconomic data suggesting a double-dip recession is a real possibility, you can take a view with IG Index.
Spread bet on a vast number of stock indices from around the globe, including all the leading UK, US, Asian and European indices. You can also take a position on individual shares, selecting from thousands worldwide.
Updated: 07/07/10
Source: [1] Financial Times (5 July 2010)
Source: [2] Financial Times (5 July 2010)
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.