Q2 earnings kick it up a notch

July 20, 2015 10:26 AM

Much like this year’s Michigan summer, which got off to a slow start before this week’s projected sweltering temperatures, the Q2 earnings season is about to kick into full swing as well.

Only about 12% of the companies in the Standard & Poor's 500 Index have reported earnings thus far, but the early results are promising, with 72% of those companies beating earnings expectations and 56% beating revenue expectations. The solid early performance thus far marks a stark contrast from the low expectations, where analysts were expecting aggregate earnings to decline by 4.5% on the back of the strong U.S. dollar.

That said, the earnings mavens at FactSet still expect overall S&P 500 earnings to decline by 3.7% when all is said and done, which would mark the largest decline in earnings since Q3 2009 (-15.5%) and the first decline since Q3 2012 (-1.0%). Given the still-depressed expectations, this week’s reports will be critical: roughly 130 companies (26%) in the S&P 500 will report earnings this week, including the largest company in the world by market cap, Apple.

As has been the case with the last few earnings seasons, the biggest theme in the United States is the strength in the U.S. dollar. Relative to Q2 last year, the greenback is roughly 20% stronger across the board; this means that foreign sales at many of the large, multinational firms that make up the index are worth “less” when translated back into U.S. dollars.

In fact, a number of top-tier companies including YUM! Brands, Johnson and Johnson, and PepsiCo have all cited the dollar as a major headwind. Of course, the precipitous drop in oil prices (down about 40% from last year) is helping some large manufacturing, consumer discretionary, and transportation companies (prominently including airlines) offset the negative impact of the rising dollar.

Beyond the obvious comparisons of earnings and revenues to expectations, traders will also focus on forward guidance this week. So far, the vast majority of companies that have provided guidance for next quarter have revised down their expectations, and forward-looking traders will be keeping a close eye on this metric as we move through this week.

Notable Earnings Reports to Watch This Week

Monday: IBM (IBM)

Tuesday: Verizon (VZ), Baker Hughes (BHI), Apple (AAPL), Microsoft (MSFT)

Wednesday: American Express (AXP)

Thursday: Caterpillar (CAT), Eli Lilly (LLY), McDonalds (MCD), AT&T (T), Visa (V)

Friday: Biogen (BIIB)

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About the Author

Senior Technical Analyst for FaradayResearch. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, he creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Weller is a Chartered Market Technician (CMT) and a member of the Market Technicians Association.