First quarter earnings season in the US are expected to underwhelm investors. Slowing growth in China and uncertainty in Europe are among key concerns. Chitra Nawbatt reports.
Brace yourselves for a weak first quarter earnings season. Analysts like Deutsche Bank expect first quarter earnings per share of S&P 500 companies to sink more than 8% over last year. It says results will be poor from energy, most machinery and other commodity linked industrial and material names, and markets exposed Banks. When it comes to technology, enterprise spending, PCs, semiconductors and electronic equipment sales are weak and inventories are high. SOUNDBITE (English), S&P DOW JONES INDICES, SENIOR INDEX ANALYST, HOWARD SILVERBLATT, SAYING: "Until sales increase, we don't see the bottom line increasing significantly and actually being hurt as cost cutting continues on." The US dollar is also causing havoc to some companies. Economists believe that the dollar will not surge near term given the US Central Bank lowering its forecasted rate hikes from 4 to 2 increases this year. The European Central Bank and others have also acknowledged the limited benefits of negative interest rates and currency devaluation. SOUNDBITE (English), PENSION PARTNERS, CHIEF INVESTMENT STRATEGIST, ED DEMPSEY, SAYING: "The strong dollar has of course impacted corporate earnings, especially from the multinationals. And that was based upon that the fed was going to raise rates, perhaps as many as 4 times this year. Chairwoman Yellen tells us no, that maybe we won't even get a rate hike this year. So one of the strongest trades of last year, the strong dollar, if that's the case the dollar would weak, which would help the multinational earnings." In this environment of instability, where are the buying opportunities for investors? SOUNDBITE (English), PRIVATE CLIENT RESERVE OF US BANK, SENIOR PORTFOLIO MANAGER, ERIC WIEGAND, SAYING: "We continue to think consumer discretionary, healthcare and select technology will represent good opportunities for investors." Analysts say stay close to the consumer. That is why some prefer big cap consumer tech, services and software stocks. In these volatile and competitive markets, companies that focus on consumer health and spending will be marginally better off.