Market volume has been unusually low for this time of year.
In fact, since October 10, 2016, daily volume is about 19% below average, according to The Wall Street Journal.
Perhaps it’s the fact that for the last 20 years October has been one of the worst months for stocks. But it also has a lot to do with fears about the U.S. elections, the Federal Reserve promises to raise rates in December, the potential for further OPEC difficulties, and underlying weakness in the U.S. economy.
For instance, consumer confidence unexpectedly fell to a one-year low this month, as Americans soured on the economy and U.S. elections; and despite some improvement, the earnings recession continued.
In fact, research firm, FactSet has noted that S&P 500 companies are projected to post their sixth straight quarter of falling earnings.
“S&P 500 companies are expected to report an overall decline in per-share earnings of 2.3%, according to FactSet, which is down from expectations of a 0.2% increase at the end of June,” as reported by Market Watch.
“That would mark the first time earnings fell for six consecutive quarters since FactSet began to track the data in the third quarter of 2008…”
Granted, companies such as Netflix (NFLX), Nike (NKE) and Goldman Sachs (GS) significantly beat earnings expectations, but many others aren’t fairing as well.
Companies like Honeywell are warning that weakness in energy markets and emerging markets are hurting demand for business jet and aviation shipments. Not only did Honeywell cut its Q3 EPS estimates this month, it also forecast earnings of $1.74 to $1.78 a share, which will miss analyst expectations for $1.80.
Even the U.S. barometer of consumer strength, Wal-Mart, lowered its guidance for 2017, noting that EPS would remain flat as compared to estimates for 4.4% growth.
Ford, General Mills, and Kroger all lowered their guidance in the last few days too.
Rent-A-Center plummeted 30% after noting that it expects Q3 EPS to fall in a range of $0.05 to $0.15, as compared to estimates for $0.39.
While Alcoa posted higher quarterly profits thanks to cost-cutting and lower tax provisions, results still fell short of expectations, as did forecasts on lower alumina prices.
And while some analysts are calling for a near-term end to the earnings recession, heavyweights, like Goldman Sachs are telling clients not to hold their breath.
In fact, Goldman Sachs expects for earnings to fall 1% on a year-over-year basis.
Analysts can hope for an end to the earnings recession, as we’ve seen in some headlines, but there’s little indication that earnings are actually recovering.
In addition, it’s not just Q3 earnings we must concern ourselves with. It’s also guidance, as things don’t look so good heading into 2017 either.
RBC Capital Markets, for instance, just warned that forecasts for the energy and banking sectors will be hurt by low oil prices and interest rates. The likelihood of a failed OPEC agreement on production cuts could weigh heavily, too.
These are all reasons why we are leery of joining the bandwagon of “pros” predicting an end to the earnings recession in the near future.
Despite signs of a weaker economy, it’s not time to panic. Instead, it’s time to look for undiscovered opportunities everyone else is too afraid to touch. That’s what The Cheap Investor does best.