GE, Microsoft and McDonald’s Head Lower on Weak Q3 Results
Stock markets showed a volatile performance last week, with early gains in the S&P 500 showing reversals into the end of the week as corporate earnings came in much lower than market analyst expectations. Some of the most notable moves could be seen with General Electric (GE), which was lower by 3.4% after the company reported a quarterly sales performance of $36.3 billion, less than the average analyst estimate, which called for revenues in the $36.9 billion range. A good part of this performance came as a result of unfavorable foreign exchange moves, which cost GE sales in the neighborhood of $1.1 billion.
Microsoft Corp. (MSFT) was another major story during the week, dropped by 2.9% after releasing its own earnings report late in the Friday session. The main story here was that sales in the Windows operating system have come in weaker in recent months, creating a drag on overall sales and profits.
Even larger losses were seen with McDonald’s, however, which lost 4.5% – equal to its biggest decline in 3 years. The world’s largest restaurant franchise released third quarter earnings which showed that profit performance in the period dropped by 3.5%, coming mostly as a result weaker sales growth in US markets.
Earnings Season Remains as the Central Focus
Looking more broadly, Per-share profits have, in fact beaten analysts’ estimates in a majority (roughly 69 percent) of the companies in the S&P 500 that have released their earnings results this quarter. With 116 reports seen so far, total earnings have shown a small increase, driven largely by a 1.8% improvement in sales
Forecasts for Q3 earnings were originally pessimistic but have shown improvements as we have moved further into the earnings season. At the moment, analysts forecasts are now showing are now expecting a smaller drop (0.3 percent) in earnings for S&P 500 companies, much better than the 2% drop that was expected at the end of September.
So while the performance in equities into the end of last week was moderately discouraging, there is still scope for another run higher in share values if the positive overall trends in corporate earnings can continue. It should be remembered that the original expectations for this earnings season were incredibly low, so it will not take much of an improvement in this arena to push market values higher. As such, spread betting investors will need to take note of the next round of published earnings results in order to get a sense of the next direction in prices.
The latest bounce in the S&P 500 is presenting some interesting selling possibilities as the overall bias is to the downside given the break of support in the historical and Fibonacci levels seen at 1420. Sell positions can be entered at current levels, looking for a long term run lower. The first target on these trades is seen at 1390 (which is another confluence of historical and Fibonacci support) but a break here will suggest much lower prices into the end of the year.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.