Investors are worried US earnings growth may finally fall back to earth as turmoil in Europe and signs of a less robust Chinese economy hurt foreign support.
Investors are worried US earnings growth may finally fall back to earth as turmoil in Europe and signs of a less robust Chinese economy hurt foreign support.
The euro zone’s debt crisis and weakness in China have fueled investor concern that the global economy could tip back into recession, possibly dampening US earnings growth at a time when the US economy is still struggling to gain ground. Overseas sales have helped US companies beat earnings expectations in the last couple of years, with foreign sales totaling 30% on average for Standard & Poor’s 500 companies.
“If the euro region is crumbling, that’s going to have a tremendous negative impact” on companies like McDonald’s, said Todd Schoenberger, managing director at LandColt Trading in Wilmington, Delaware.
The most recent company to trouble investors about the earnings outlook is Ingersoll Rand Plc, whose shares tumbled 12.1% to $28.09 on Friday after the industrial conglomerate cut its third-quarter and full-year earnings forecast to below market estimates.
The S&P 500 finished the quarter with its worst performance since 2008, and many strategists have slashed their forecasts for year-end. The S&P 500 dropped 14.3% in the third quarter, losing about $1.7 trillion in market capitalisation.
A disappointing third-quarter earnings period, which begins the second week of October, could only trigger more losses, analysts said. Stronger-than-expected earnings helped stocks claw back from 12-year lows in 2009.
Next week, investors also will be bracing for data on the US job market, among the weakest parts of the economy. Companies reporting earnings have benefited for the last decade from weakness in the dollar, which helped overseas revenue figures.
With the euro down 7.4% this quarter, the biggest quarterly loss by percentage since mid-2010, companies could lose some of that currency cushion.
“I think you’ll see a lot of companies blaming problems on Europe,” said Justin Walters, co-founder of Bespoke Investment Group in Harrison, New York. Walters said excluding companies that report In China, which has been a major engine of growth for the global economy, data has shown some weakness. On Friday, figures showed the country’s manufacturing shrank for the third month in a row and had the longest contractional streak since 2009.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}