Article / 08 January 2016 at 14:45 GMT

Earnings Watch: Beware of speed bumps in Q4 results

Head of Equity Strategy / Saxo Bank
Denmark
  • Q4 earnings season gets under way next week
  • Earnings seen affected by strong USD, manufacturing slowdown, weak commodities
  • Base effects of those drags may have bottomed out in Q3
  • Q3 earnings were a mixed bag
  • We expect a small bounce in Q4 earnings and sales q/q
  • Many US banks had a tough Q4 due to disruptions in high-yield credit markets

Speed bump
 Although we expect a small bounce in Q4 earnings and revenues, investors should still be 
prepared for speed bumps. Photo: iStock


By Peter Garnry

The third-quarter earnings season was a mixed bag with many companies disappointing on earnings as the strong dollar created headwinds for US companies and the slowdown in Asia contributed to a low-growth environment. Fourth-quarter earnings season starting next week may not do much for investors as global companies continued to face many headwinds in the last three months of 2015.

Our view is that the base effects of the stronger USD, global manufacturing slowdown and earnings drag from lower commodity prices in the energy and materials sectors are diminishing fast, with the bottom likely to have been reached in Q3. We expect a small bounce back in Q4 earnings and sales quarter-on-quarter, with further improvements over the coming quarters lifting sentiment for investors and pulling global equities higher after a poor start to the year.

The most important earnings releases next week are...

Monday: Alcoa

Tuesday: CSX

Thursday: Intel, JPMorgan Chase, Taiwan Semiconductor

Friday: Wells Fargo, Citigroup, US Bancorp, BlackRock

Aluminium producer Alcoa will report another bad quarter, and chipmaker Intel will also show pressure on earnings from its core business even though the high-growth data centre business unit is showing strong results. 

US financials, excluding asset management firms and insurance companies, experienced a tough Q4 due to disruptions in high-yield credit markets, which likely imposed losses on banks' trading books. Wells Fargo, with its more limited exposure to financial markets, will have continued to do well in the quarter, exceeding expectations.



— Edited by John Acher

Peter Garnry is head of equity strategy at Saxo Bank

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Earnings Watch - 2016-01-11

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