Earnings-per-share at S&P 500 companies probably fell 1.8% in the first three months of the year, the first year- over-year drop since 2009, analyst estimates compiled by Bloomberg show. Three straight years of profit growth helped propel the benchmark index up as much as 132% since 2009 to a record 1,570.25 on April 2. The gauge’s valuation was 15.5 times reported adjusted earnings on that day, the highest in more than two years.
“Over the last four quarters, analysts have cut their forecasts too aggressively going into reporting season, resulting in consistent beats on lowered expectations,” Savita Subramanian, Bank of America Corp.’s head of U.S. equity strategy, wrote in a report dated April 8. “Recent data suggest that the magnitude and the proportion of positive surprises may be lower this quarter” compared with the fourth quarter, she wrote. “Headwinds include the deterioration in management guidance, weaker economic data in March, and the rising dollar.”
More than four companies forecast earnings below analysts’ average estimate in March for each that predicted profit above, according to data compiled by Bloomberg. The Citigroup Economic Surprise Index for the U.S., which gauges how much reports in the past three months beat or trailed the average economist forecast, slid to 2.9 yesterday, the lowest level since February. The Dollar Index is trading near an almost eight-month high of 83.49 reached on April 4.
HSBC Holdings Plc’s global head of equity strategy, Garry Evans, said there are signs that earnings are picking up and predicted the S&P 500 will return a further 7% this year including dividends, while saying there may be a “modest correction” in the short term as economic growth disappoints investors during the summer months.
HSBC raised U.S. stocks to overweight, while cutting European equities to underweight and boosting Japan to neutral. U.S. and Australian stocks were cut to neutral from overweight by Citigroup Inc. strategists led by Robert Buckland, who cited valuations. Global emerging-market equities were raised to overweight from neutral at Citigroup.
The Stoxx Europe 600 Index added 0.15%. Mining companies led gains, with Rio Tinto Group, Lonmin Plc and Kazakhmys Plc rising at least 4.8%. The Stoxx 600 Basic- Resources Index surged 3.3%, the most in a month.