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Fourth quarter earnings season starts with reduced estimates

earnings, stock market abnormalities, stock market psychology

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The earnings season for fourth quarter started already for some companies, but it will really get going with the January 11th releases from the big banks.

In terms of estimate revisions for companies in the S&P 500, the analysts have reduced earnings per share estimates within average levels for Q4 2018 to date. On a per-share basis, the estimated earnings for the fourth quarter have fallen by 2.8% since September 30. This percentage decline is larger than the 5-year average (-2.4%) for the first two months of a quarter but smaller than the 10-year average (-3.3%) and the 15-year average (-2.9%) for this period.

Total Q4 earnings for the S&P 500 index are expected to be up +12.3% from the same period last year on +5.6% higher revenues, with the growth pace meaningfully decelerating from the rate we saw in the first three quarters of the year.

The transportation sector is the only one experiencing positive estimate revisions, a reflection of weakening oil prices.

Adobe reports mixed Q4 results

The Computer software company Adobe released fourth quarter and fiscal 2018 financial results. The Photoshop maker said its results broke corporate records for quarterly and annual revenue, but some of the numbers fell short of Wall Street expectations. Adobe Systems came out with quarterly earnings of 1.83 USD per share, missing the estimates of 1.88 USD per share, but beating the earnings from the same period last year.

The software giant reported Q4 net income of 678 million USD. The non-GAAP earnings in the quarter were 1.83 USD per share on revenue of 2.46 billion USD, up by 23% from the same period last year.

For the year Adobe’s results were also mixed, with the company reporting revenue of 9.03 billion USD and earnings of 6.76 USD per share, compared to analyst estimates for revenue of 8.99 billion USD and EPS of 6.82 USD.

What can expect from the Wall Street stocks in 2019?

Recently, we have witnessed a serious volatility in the US stock markets. The largest US stock indices trade well below their maximum levels for the year and show serious fluctuations even within one session.

The American stock markets entered in a very bullish mood in 2018 and the situation for investors looked like “flowers and roses”. But that only continued until the beginning of February, when the Dow Jones was adjusted by more than 13% and the other two major US S&P 500 and Nasdaq 100 lost 11% and 13% respectively. This could be said to be the first red light for investors.

According to the analysts, the US indices mail fail to resume their upward movement. On the contrary, they predict a serious slowdown in the US economy, which may turn into a recession. This may result in a 30-40% adjustment for Dow Jones, S&P 500 and NASDAQ, affecting the companies earnings.

The reasons that may lead to a slowdown in the US economy and a fall in stock markets are pretty much the case. Beginning with the rise in interest rates, we go through the huge government debt, the surge in US bond yields and get to the trade war between the US and China.

For full-year 2018, total earnings for the S&P 500 index are expected to be up +20.8% on +6.8% higher revenues. For full-year 2019, total earnings are expected to be up +7.9% on +5.2% higher revenues.