The corporate earnings are expected to contract in the first quarter and fears of an economic slowdown abound. Yet the US stock market is still up more than 13% this year, but the estimated earnings decline for Q1 2019 for the S&P 500companies is -3.6%. If -3.6% is the actual decline for the quarter, it will mark the first year-over-year decline in earnings for the index since Q2 2016.
With the end of the first quarter approaching, out of the 11,021 ratings on stocks in the S&P 500, 53.6% are Buy ratings, 40.3% are Hold ratings, and 6.0% are Sell ratings.
At the sector level, analysts are most optimistic on the Energy (67%), Health Care (60%), and Communication Services (59%) sectors, as these three sectors have the highest percentages of Buy ratings. It is interesting to note that the Energy sector is projected to report the largest earnings decline (-12.6%) of all eleven sectors in 2019.
Last week, the US Federal Reserve said it expects to end its balance-sheet reduction process by the end of September and decided to keep interest rates unchanged. Moreover, the central bankers decided that will not have any rate hikes in 2019. The decision of the Fed keeps markets under pressure, confirming the gloomy guidance of the S&P companies.
For now, investors are betting the central bank can keep the equity market afloat even as corporate profits decline and the economy slows down. They believe earnings don’t have to grow all that much this year to justify higher share prices as long as interest rates head back lower.
In order for the stock market to keep attracting more buyers and build on gains seen since the start of the year, investors will need to work past several big milestones over the next six to eight weeks. The first quarter reporting season will give a lot of answers, as markets will watch for any fears or signs of volatility on trading. China is holding lots of keys when it comes to further gains for Wall Street. It’s not just the trade story that matters, but also the economic growth of the country. This is one of the largest markets, seriously affecting Wall Street investors. They will really want to see proof that the country’s recent stimulus measures will start kicking in.
During the week, there some important financial statement of FedEx Corporation, microprocessor manufacturer Micron and sportswear producer Nike.
FedEx reported disappointing fiscal third-quarter earnings
The parcel-delivery company FedEx Corporation reported disappointing fiscal third-quarter earnings after the market close on Tuesday and cut its full-year outlook for the second time in three months. FedEx’s earnings were down to 3.03 USD per share from 3.72 USD a year earlier, while revenue rose from 16.5 billion USD to 17.01 billion USD. However, both figures remained below the analysts’ expectations and sent disappointing signals to the markets.
Moreover, the logistics company lowered its full-year 2019 guidance for the second time to a range of 15.10 USD to 15.90 USD, compared with the forecast of 15.97 USD.
“Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue”, said the FedEx executive vice president and chief financial officer, Alan Graf Jr.
The higher labor costs and weaker global trade growth are playing a role in setting FedEx up for its weakest year of earnings growth since fiscal 2010.
“Our investments in innovation, network infrastructure, and automation will increase our competitiveness and drive long-term earnings growth. FedEx built and operates the preeminent global parcel and logistics network, and we have a lengthy track record of success”, said CEO of FedEx, Frederick W. Smith.
Micron beat revenue and profit expectations
The fiscal second-quarter earnings report of the microprocessor manufacturer Micron beat revenue and profit expectations. Going into the event of quarterly financial statements, the investors were bracing for the worst. The industry has yet to shake the meme that they have serious inventory and pricing pressure. However, they faced a nice surprise.
The company reported revenue of 5.84 billion USD, versus 7.35 billion for the same period last year. The GAAP net income is 1.62 billion USD or 1.42 USD per diluted share.
Micron reported share repurchases of 702 million USD under the authorized buyback program.
“Micron continues to execute well across a range of product, operational and financial initiatives against the backdrop of a challenging market environment”, said Micron Technology President and CEO, Sanjay Mehrotra. “These initiatives and our focus on high-value solutions, cost competitiveness and innovation will enable us to emerge even stronger as the market environment improves”, added he.
Nike sales growth disappoints
Nike reported net income of 1.1 billion USD or 0.68 USD on revenue of 9.61 billion USD. The revenue growth slowed to 7% from 10% in Q2. North American sales rose by 7% in Q3, missing some estimates, down from 9% in Q2.
Europe, Middle East, and Africa sales increased by 6%, down from 8% in Q2. China sales jumped by 19%, down from 26%. The Asia Pacific and Latin America sales rose by 3%, up from 2%.
Nike gave cautious revenue guidance late Thursday and missed some fiscal Q3 estimates for the key North American market but was bullish on driving growth from female customers.