Global concerns may shrink Wall Street's third-quarter estimates

Sun Sep 6, 2015 12:26pm EDT
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By Sinead Carew

NEW YORK (Reuters) - Slowing growth in emerging markets and currency fluctuations in anticipation of a U.S. interest rate hike may push third-quarter revenue and earnings estimates lower this month.

Wall Street expects a 3.4 percent decline in earnings for the S&P 500 .SPX for the quarter. Estimates have already fallen for 9 out of 10 of the benchmark index's sectors so far this year, according to Thomson Reuters data.

S&P revenue is expected to fall 2.8 percent for the quarter, led by steep declines in the energy and materials sectors. As companies tend to revise guidance around the end of the quarter, estimates may become even less optimistic.

"Analysts will likely be pulling in their reins going into the quarterly reports and the pre-announcement season. This could happen fairly quickly," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

The dollar index .DXY, measuring the greenback against a basket of major currencies, has risen 0.8 percent so far this quarter after falling 2.9 percent last quarter. Ghriskey sees the currency's strength hurting the competitiveness of U.S. exports against local products overseas and imports here, resulting in shrinking revenue and earnings for U.S. multinationals.

In addition, demand is likely slower in many overseas markets with slowing growth in China and recessions in Brazil and Russia hurting both revenue and earnings.

Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis, says that since the majority of S&P companies tend to beat earnings estimates every quarter, he will focus more on revenue than the bottom line, which can be tweaked with cost cuts and share buybacks to beat estimates.

But Paulsen is not optimistic about the coming quarter.   Continued...

Traders work on the floor of the New York Stock Exchange shortly after the market opened in New York September 4, 2015.  REUTERS/Lucas Jackson