Investors are cautious ahead of this reporting season as the poor stock market performance at the back end of last year has creeped into 2016. The trend of previous reporting seasons in recent years is that fewer companies are exceeding their expectations. Macroeconomic themes, like the slowing down of the emerging economies, the collapse in the commodity markets and the strong US dollar will keep playing their part in the reporting season. Even though there a select few stocks that are rallying regardless, there is a feeling this reporting season will be a turning point as the broader market is delicate.
Some equity markets hit an all-time high in 2015, including the Dow Jones and the S&P 500. The record highs were not driven by excellent fundamentals, but more the willingness of central banks to operate loose monetary policies, with the European Central Bank’s stimulus package being a key driver for eurozone markets.
The rallies in the Dow and the S&P 500 both began to wane in the second-half of the year and both indices printed negative returns by the year’s end. Finishing in the red after hitting record highs is concerning, and so far investors have opted not to buy the dip, but rather wait until reporting season gets underway.
US equity markets spent the bulk of 2015 being rangebound, having never really recovered from August’s ‘Black Monday’. The Dow Jones and the S&P 500 were plateauing before the summer crash, and both failed to make up the lost ground since. The bull run that global stock markets experienced in the wake of the credit crisis started in the US, and now it appears to be running out of steam. With the exception of the DAX, the Dow Jones and the S&P 500 easily outperformed the major indices in the eurozone (between January 2009 and December 2014) and now it seems the US equity rally is cooling.
Positive projections for 2016
The last reporting season (16 August until 15 November 2015) saw just under 44% of companies in the S&P 500 exceed their revenue estimate, and nearly 74% posted higher than anticipated earnings per share figures (EPS). Healthcare, telecommunication and technology stocks outperformed the market in terms of the percentage of companies beating revenue and EPS expectations. Oil & gas and basic material stocks underperformed on the revenue front but did very well on EPS.
With the US economy being relatively strong, investment banks have higher estimates. In the aftermath of the credit crisis, a much higher percentage of companies were topping, but this was partially thanks to the low levels of estimates. A number of firms exceeding their expectations dwindled in 2015, but according to Bloomberg we are anticipating a higher percentage of companies to beat revenue and EPS forecasts in 2016.