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After Alcoa: What Is Wall Street Expecting From Q1 Earnings Season?

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There is no surer sign that Spring has arrived than when the daffodils start to bloom and the country's biggest aluminum producer unveils its perennial April offering, better known as first quarter earnings. While Alcoa's (AA) results are out, 95% of the S&P 500 has yet to report their numbers but the street is ready and bracing for another set of truly awful numbers.

"As of today, the expected growth rate for the S&P 500 for Q1 is for -0.6%," says John Butters, senior earnings analyst at FactSet, in the attached video. "That's down from an expectation of growth of 2.1% at the start of the quarter."

The slump in expectations comes at the hands of declining projections for 9 of 10 sectors, Butters says, with the biggest scale-backs coming in the materials (XLB), technology (XLK), and consumer discretionary (XLY) sectors. At the same time, "slight revisions upward" in Bank of American (BAC), JPMorgan Chase (JPM) and Goldman Sachs (GS) saw the financials (XLF) become the only sector that closed the quarter with higher expectations than it started out with three months ago.

"We typically see the bar come down during the course of the quarter and then companies beat the lowered expectations," Butters says, adding that he thinks we will likely finish up with ''slight growth" in the 2-3% range. While better than a negative number, Butters says even 2-3% would still be one of the slowest growth rates we've seen in 3-4 years.

You might think, given the record high level of stocks, that this paltry growth rate would be a warning sign, but Butters says traders are counting on a big rebound in the 2nd half of the year.  In addition, he points out that the market is still trading at a price-to-earnings ratio of 13.6x, which is well below its ten-year average (14.2x), and a fraction of P/E levels seen at previous market tops.   It's a phenomenon of back-loaded profit expectations that, he says, will make guidance that much more important.

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