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| Butters Stotch (Photo credit: Wikipedia) |
"While there is sort of a negative feel to this earnings season at the start, analysts are optimistic that this will be a one-time decline and earnings will continue to grow going forward," he says.
The Weak and the Winners
On the weak side of things, Butters says the Materials sector (XLB) is currently forecast to post the biggest drop in profits (-21%), followed closely by a 20% drop in earnings within the red-hot, and far more influential and heavily weighted Energy sector (XLE). But if you back out the drag of the energy, he says S&P 500 profits would actually turn positive at 0.6%.
On the hot side, Butters describes a tug of war going on within the Financials (XLF), with particular strengths in the REITs and regional banks. In fact, our number crunching guest says the 10% market leading growth of this sector would jump to 13% if just four of its 78 members are tossed out --Bank of America, (BAC), Morgan Stanley (MS), AIG (AIG), and Goldman Sachs (GS).
The External Threat
"Weakness in Europe, less favorable foreign exchange rates, and slower growth in China and emerging markets will all have a negative impact on earnings and revenue growth this quarter," Butters says, citing examples of each headwind from a rather ominous pre-announcements period, which he says included Oracle (ORCL), FedEx (FDX), Nike (NKE), and General Mills (GIS).
So in the end, with earnings expectations now nicely tenderized and sufficiently low, it should be easy for most companies to beat their bogey and deliver the coveted positive earnings surprise, even if those results end up being negative, a la Alcoa's (AA). ... Continue to read.
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