S&P 500 Q4 earnings season recap: Revenue and profit recessions continue

<p>We may be jumping the gun a bit with a full earnings season recap, but now that about 90% of the companies in the S&P 500 have reported their earnings, we can certainly start to draw some meaningful conclusions about business activity in the fourth quarter.</p>

We may be jumping the gun a bit with a full earnings season recap, but now that about 90% of the companies in the S&P 500 have reported their earnings, we can certainly start to draw some meaningful conclusions about business activity in the fourth quarter.

According to the earnings mavens at FactSet, the blended (combining actual results for companies that have reported and estimated results for companies yet to report) earnings decline is tracking at -3.6% for the quarter, while the blended revenue decline currently sits at -3.7%. While these numbers may still tick up or down by a tenth a two, it’s a safe bet that the S&P 500 has just seen its third consecutive quarter of earnings declines and the fourth consecutive quarter of revenue declines; in other words, the "revenue recession" and "profit recession" are both still intact this quarter.

Drilling a bit deeper, 68% of companies that have reported thus far have beat their consensus earnings estimates, in-line with the 1-year (69%) and 5-year (67%) averages, but only 48% beat consensus sales estimates, below both the 1-year (50%) and 5-year averages (56%). Using the above indicators as a "diffusion index" of sorts, it’s clear that aggregate US business activity is not accelerating relative to the recent pace, though we appear to be far from the "imminent deep recession" view espoused by the most pessimistic bears.

What were the major themes driving S&P 500 company earnings in Q4? Once again, the biggest story was the US dollar, which had appreciated 5-10% against its major rivals relative to last year. The greenback’s rise had a particularly negative impact on large, multinational companies; as Factset notes, the blended earnings change for companies that generate more than 50% of their sales within the US was positive 2.7%, whereas companies with more than 50% of their sales coming from international markets saw a whopping 11.2% decline in earnings. Beyond the impact of the dollar, weak energy prices, slowing growth in China, and rising wages were other prominent themes in Q4 earnings reports.

Moving forward, the relative strength of the dollar, precipitous drop in oil prices, and the ongoing slowdown in China will likely lead to further declines in earnings and revenues over the next two quarters. Starting in the second half of the year, the negative "base effects" of the drop in oil and rise in the dollar will start to roll over the year-over-year comparisons, and assuming no exogenous shocks (always a big caveat), we should both earnings and revenue growth return to the S&P 500.

For a look at the technical outlook for the S&P 500 and key levels to watch moving forward, see my colleague Fawad Razaqzada’s report from earlier today.

For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom)

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account