After the previous week’s blitz of economic reports, the coming week is relatively quiet on the data front. Most market attention will be on first-quarter earnings announcements -- 150 of them for companies in the S&P 500. By the end of the week, investors will have a much better idea of just how hard earnings are getting hit as the economy slides toward recession.
Clearly, financial companies are leading the bad news for the bottom line. Earnings in that sector are expected to have plummeted more than 60% last quarter, a third-consecutive major drop that has caused overall profits for the S&P 500 companies to decline for the third quarter in a row. That hasn’t happened since the 2001 recession.
Outside of financials, earnings in all other sectors have continued to post modest growth. Based on current reporting and expectations, Thomson Financial says profits outside of finance will post a first-quarter gain of about 6%.
The non-financial sectors are the big question marks, however, especially in the second quarter, when economists expect the economy to post its weakest performance of the year. The failure of General Electric (GE) to make its first-quarter earnings expectation, given its diversity and breadth of economic exposure, sharply focused attention on the weak economy’s potential impact on profits for the rest of the year.
One pattern seems likely to hold true. Companies with sizable overseas operations will generally fare somewhat better than those more dependent on domestic demand by U.S. consumers and businesses. Through the fourth quarter, overseas earnings rose more than 40% from a year earlier, the fastest pace on record. In the first quarter, exports continued to grow strongly, and the lower dollar will lift earnings of U.S. foreign affiliates when those profits are translated back into dollars. However, keep in mind that profits from domestic operations still account for about 80% of all corporate earnings.
Here at home, this week will offer investors updates on two crucial sectors: home demand and capital spending by businesses. On Wednesday, look for March sales of existing homes, which have shown some signs of stabilizing in recent months. And on Thursday, watch for March data on new home sales, which have continued to slide. Also on Thursday, the report on March durable good orders will provide data on orders and shipments of capital goods, which will show the extent to which companies are reining in their expansion plans.
Here’s the weekly economic calendar, from Action Economics:
Top Economic Reports
Reports
Date
Time
For
Median Estimate
Last Period
Existing Home Sales (Mln)
Wednesday, April 23
10:00 a.m.
March
4.950
5.030
Durable Goods Orders
Thursday, April 24
8:30 a.m.
March
0.3%
-1.1%
New Home Sales (Mln)
Thursday, April 24
10:00 a.m.
March
0.586
0.590
Consumer Sentiment (U. of Michigan, final)
Friday, April 25
10:00 a.m.
April
68.3
63.2