Fourth quarter earnings continue to filter in with about half of the companies in the S&P 500 already reported. More than half of the companies that have posted results have beat analyst expectations, lifting broad market exchange traded funds such as the SPDR S&P 500 (NYSEArca: SPY).
Overall earnings sentiment is weak, with reports coming in mediocre at best. The broad market rallied last week due to a healthier employment report and positive U.S. economic data. [ETF Portfolio Shifts Reflect Risk-On Trade]
S&P 500 earnings are still on a growth trend but at a slower pace than other quarters. Earnings are not coming in at the noticeable record levels seen in previous quarters, and Steven Russolillo for The Wall Street Journal points out that if you remove Apple (NASDAQ: APPL) from the picture, earnings are looking rather weak. [Stock ETFs See Bullish Technical Signal]
“As we drill down into 4Q earnings, what jumps out is the substantial nose dive in growth in the most recent quarter. While excluding Apple makes this trend even clearer, there are a number of factors behind this rapid deceleration. More specifically, foreign growth, the dollar, and energy prices have all shifted from tailwinds to headwinds,” Jonathon Golub, UBS Strategist, said in the report.
According to UBS, growth is only at 1.6% for the fourth quarter, ex-Apple. This is anemic compared to results ex-Apple during the other quarters: growth came in at 15% in the first quarter, 17.1% in the second quarter and 16.5% in the third quarter.
The numbers and sentiment are not negative however, with 56% of the S&P 500 companies having beat analysts expectations, and 32% having reported below expectations, reports Jason Pride, Director of Investment Strategy at Glenmede. In total, about 59% of companies have reported. [U.S. ETFs See More Inflows]
As far as revenue growth is concerned, 51% of companies have beat revenue expectations, with 49% below the mark. The Russell 2000 small-cap companies are also showing signs of overall weakness, with 52% reporting positive numbers and 39% falling under analyst expectations, according to Pride.
Going forward, the expectations for companies that have yet to report are not anticipated to raise eyebrows. Excluding the financial sector, earnings are expected to be 3.76% lower than last years, reports Zacks. For the week ahead, 69 S&P 500 companies are to report.
SPDR S&P 500
Disclosure: Tom Lydon’s clients own SPY.