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S&P 500 ends its best quarter in a decade, but the business estimates earnings decline in the period

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The S&P 500 ends its best quarter in a decade, but the companies within the index estimated earnings decline for the period to -3.7%. This will mark the first year-over-year decline in earnings for the index since Q2 2016.

Heading into the end of the first quarter, 105 S&P 500 companies have issued EPS guidance for the quarter with 77 of them having negative EPS guidance and 28 companies have issued positive EPS guidance. The Information Technology and Health Care sectors are the main contributors to the above-average negative sentiment in EPS guidance for the first quarter. Thus, the bigger contributors for the growth of Wall Street indexes are most pessimistic for the earnings and revenues. Should be mentioned that S&P 500 Information Technology sector has 18.22% year-to-date increase, while the health care sector added 4.88%.

In the Information Technology sector, 26 companies have issued negative EPS guidance for the first quarter. At the industry level, the Software (7) and Semiconductor & Semiconductor Equipment (6) industries have the highest number of companies issuing negative EPS guidance. It is interesting to note that an unusually high number of companies in the sector have also issued negative revenue guidance for the quarter.

The main reason for the negative guidance and gloomy sentiment of the business is the US-China trade war, as well as recession fears. This caused serious turmoil in the markets during the last months. However, amid the renewed Sino-American negotiations, as well as expectations for a recent trade agreement, the markets are on the rise. This will definitely support the export-oriented business and companies with global exposure.

As the markets are not within the active reporting season, there were just a few important statements during the week. The key events on the market were the earnings of Carnival Corporation, as well as Red Hat.

Carnival Corporation surpassed expectations, but growth slows down

Carnival Corporation reported first-quarter fiscal 2019 results, wherein both earnings and revenues surpassed analysts expectations. Despite reporting better-than-expected results, shares of the company declined 8.8% on Mar 26 due to weak guidance for second-quarter and fiscal 2019.

Carnival Corporation has announced US GAAP net income of 336 million USD, or 0.48 USD diluted EPS, for the first quarter of 2019. The GAAP net income for the first quarter of 2018 of 391 million USD, or 0.54 USD diluted EPS. The adjusted net income excludes net charges of 2 million USD for the first quarter of 2019 and net gains of 16 million USD for the first quarter of 2018 relating to unrealized gains on fuel derivatives net of other charges. Revenues for the first quarter of 2019 were 4.7 billion USD.

On a constant-currency basis, net revenue yields rose 0.5% year over year. Higher net onboard and other yields that increased 3.1% in constant currency led to the uptick.

However, Wall Street has pushed shares lower on the prospect of slower sales gains and the potential for weaker earnings as fuel prices spike. These are both short-term concerns, but they’re still worrisome enough to spook many investors. The challenges impacted Carnival’s most recent earnings report.

Red Hat earnings beat expectations

Red Hat reported fourth-quarter fiscal 2019 non-GAAP earnings of 1.16 USD per share, which surpassed the analysis’ expectation by 15 cents. The figure increased 26.1% on a year-over-year basis.

The company’s revenues increased 14% year over year to 879 million USD, primarily driven by strong demand for hybrid cloud technology solutions as well as aggressive cross-selling. The revenues, adjusted for currency impact, increased 16.9% year over year to 902.6 million USD.

Company report that customers with active subscriptions greater than 5 million USD increased 33% yoy.

Due to its pending acquisition by IBM, the company won’t hold a call or provide guidance, but an earnings statement gave some insight into growth areas for the company, with app development tools surging.