Earnings season begins with dollar in spotlight
The bar is low for earnings season, with a strong dollar and slowing global growth.
The third-quarter earnings season kicks off on Wall Street Wednesday with the bar set low due to analysts slashing profit forecasts — but also with looming headwinds in the form of a stronger dollar and slowing growth around the globe.
On Tuesday, the Dow Jones industrial average fell 272.52 points, or 1.6%, to 16,719.39, its worst drop since July 31 and leaving it down 3.2% from its Sept. 19 record close of 17,279.74.
The dollar rose 8% vs. a basket of foreign currencies in the third quarter, according to Bank of America Merrill Lynch. What’s more, any profits booked abroad by U.S. companies will shrink when repatriated back home with more expensive dollars.
Wall Street is forecasting profit growth of 6.4% in the third quarter over the same period a year ago, which is down from 8.6% growth in the second quarter of 2014, according to data compiled by Thomson Reuters I/B/E/S. The earnings bar, however, has been coming down, as profit growth of 11% was forecast back on July 1. “Analysts have lowered the ‘expectations’ bar pretty significantly,” notes Paul Hickey, co-founder of Bespoke Investment Group.
Since much of the dollar’s rise came late in the quarter, it is likely to have “a greater impact on fourth-quarter guidance than third-quarter results,” BofA Merrill Lynch equity and quantitative strategist Savita Subramanian said in a report.
Source: Usatoday- Earnings season begins with dollar in spotlight
