Lackluster corporate profits and revenue in third-quarter earnings reports are unsettling investors and pushing equity ETFs lower.
“Cautious guidance, along with the election and the fallout from the fiscal cliff, has put investors on edge. As a result, many may be willing to end the year early and accept a potential low double-digit gain,” according to Standard & Poor’s, which points to “headline-grabbing third-quarter earnings disappointments” by high profile S&P 500 components.
SPDR S&P 500 (NYSEArca: SPY) is up about 14% year to date although the blue-chip stock ETF has slumped a bit in October on disappointing third-quarter earnings reports.
Additionally, U.S. companies are announcing guidance below Wall Street forecasts.
“Halfway through the third-quarter earnings season, one thing is becoming clear: the fourth quarter is likely to be gloomy,” MarketWatch reports. About 90% of firms are guiding under Wall Street estimates.
“People should forget the Fiscal Cliff, this market is all about the Earnings cliff,” said hedge fund consultant Michael Belkin, The Big Picture blog reports.
S&P estimates earnings of S&P 500 companies fell 3% in the third quarter from a year ago. That would be the first drop in corporate profits since the end of the recession, according to Fortune.
In a note earlier this week, S&P said of the 188 companies that reported third-quarter earnings, 113 beat estimates, while 45 missed, producing a beat rate of 60%, down slightly from the second quarter.
“And yet about 60% have missed their sales targets, meaning that corporate America is somehow extracting more profit than promised despite bringing less money into the tills than expected,” Reuters reports. “Corporate earnings and revenues can’t, as they are doing this earnings season, diverge forever.”
Full disclosure: Tom Lydon’s clients own SPY.