Q3 earnings season is well under way. So far, around 20 per cent of the S&P 500 have released their results.It’s too early to say whether it was a good or bad quarter overall.
But Goldman Sachs’ David Kostin notes two patterns have jumped out. And they’re both ugly:
Two early conclusions from 3Q earnings season:
(1) Information Technology top-line sales results have been weak lead by MSFT, GOOG, IBM, and ORCL. Since the start of 3Q reporting season, analysts have cut 4Q sales forecasts for those Information Technology firms reporting results by 70 bp, lowered margin forecast by 43 bp and cut expected EPS growth by 260 bp.
(2) Earnings guidance for 4Q has been overwhelmingly negative across the S&P 500 with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect reductions of perhaps 6% still need to take place.
Kostin is one of the more bearish strategists on Wall Street. He expects the S&P 500 to sink to 1,250 by the end of the year. So the worse the news, the better for him.