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A look at fourth-quarter earnings

Earnings season is just getting underway and it looks like the stock market could use some good news.

As I write this, the S&P 500 is down just over 2 percent year to date. Aluminum maker Alcoa traditionally kicks off the quarterly earnings season, and it reported better than expected earnings and revenue last Monday after the market closed to get the earnings season going.

Earnings reporting will begin in earnest over the next few weeks and should be the main driver of stock prices in the near term.

The S&P 500 is expected to have earnings growth of about 3.5 percent this quarter and that number has been revised downward recently.

That means the bar is set pretty low and some upside earnings surprises could be good news for the market.

Health care and telecom are forecast to be the strongest sectors, with growth rates above 10 percent.

The industrial sector is also forecast to have a growth rate over 10 percent. Energy and materials are expected to be among the worst performing sectors.

The financial sector is forecast to show an earnings decline of 0.6 percent, and so far, three of the major banks have reported and they have all missed their estimates.

Bank of America, Citigroup and J.P. Morgan Chase have all reported and all three had earnings and trading revenue that were below expectations.

Chip maker Intel has already reported better than expected income and revenue. Intel was one of the best performing stocks in the Dow Jones Industrial Average last year with a gain of over 40 percent.

The energy sector will be the one to watch this quarter, as the low price of crude oil should have an adverse impact of the profits of energy companies.

The low cost of oil and gas should benefit other sectors, but it may take some time for that effect to show up.

It will be interesting to see how the rest of the earnings reports come in. With overall expectations set pretty low we can hope for some upside surprises.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.


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