S&P’s Stovall Predicts Weak Q2 for Stock Earnings

Standard & Poor’s chief investment strategist Sam Stovall predicted Monday that second-quarter stock earnings reported in July will show a weak performance across all U.S. sectors.

In June, all 10 sectors in the S&P 1500 Composite Index declined in price from 2.6% for Utilities and 4.0% for Health Care, to more than 6.5% for Energy, Financials and Information Technology, Stovall noted in “Dismal Quarter on Deck,” a U.S. sector comment written for S&P Equity Research.

Stovall (left) pointed to Capital IQ’s report that analysts now see the S&P 500’s Q2 results coming in 0.6% lower than they had expected a month ago. “What’s more, seven of the 10 sectors in the 500 have seen decreases in Q2 expectations, ranging from 0.1% to 0.3% for six sectors (Consumer Discretionary, Consumer Staples, Info Technology, Materials, Telecom Services and Utilities) to as much as 3.9% for the Financials sector,” he wrote.

“Even though the bar has been lowered for Q2 earnings results, thereby possibly triggering a short-term counter-trend rally, history suggests that further seasonal challenges lie ahead,” Stovall said. “What’s more, by our analysis, technical factors continue to point to a deepening pullback or correction, and fundamental forecasts may be starting to acknowledge these slowing conditions.”

The S&P 500’s performance in June represented one of only three months to post average declines since 1945, along with February and September, Stovall noted. The index swooned in June, declining 5.7% in price, accompanied by a similar 5.7% drop for the S&P SmallCap 600, as well as a 5.4% fall the S&P MidCap 400 Index.

The red ink was widespread among the 146 sub-industries within the S&P 1500 Composite as 139, or 95%, of them fell during the month, Stovall said. For the second quarter to date, three of the 10 sectors rose in price – the defensive Consumer Staples, Health Care and Utilities sectors – but seven declined, led by Energy, Financials and Info Technology.

Looking forward, Stovall remains pessimistic.

“July, like an oasis in the desert, has traditionally offered a respite to the oppressive heat applied to equity prices during the seasonally weak summertime months that this year have been exacerbated by extremes in sentiment toward sovereign debt concerns, the U.S. Congress ‘playing chicken’ with the debt ceiling and downwardly revised global GDP growth forecasts,” Stovall wrote.

Read about Q2 outlooks from LPL, BlackRock and more at AdvisorOne.com.