The first half of earnings season is a wrap and 66% of the 291 Standard & Poor’s 500 (S&P 500) companies that have reported earnings, have managed to beat Wall Street expectations. Another 13% of the S&P 500 companies have managed to match Wall Street estimates. Despite this fact, Standard & Poor’s Capital IQ expects overall corporate profits to decline to the tune of half a percent from the same period one year ago. If this prediction holds true, it would mark the first time that year-over-year actual corporate earnings have declined since the third quarter of 2009. Considering the Great Recession ended June of 2009, this is far from exciting news.
According to S&P Capital IQ, S&P 500 company profits are currently 0.65% below the second quarter 2011 mark. With around 50% of S&P 500 revenue stemming from non-US sales, it is now safe to say that the debt crisis in Europe, and the economic growth concerns of China have contributed, and will continue to contribute significantly to the US corporate earnings slowdown.
S&P Capital IQ estimates around 14% of S&P 500 revenue was derived from Europe in 2011, a far cry from the 26% derived from Europe in 2010. Some analysts believe this year could see European S&P 500 revenue percentages drop into the single digits. Ouch! When coupled with the rising value of the U.S dollar, retail investors should definitely take a closer look at their portfolio’s international exposure.
However, many, including myself, remain confident that the S&P 500 will finish the year in the 1400-1450 range set by Well’s Fargo. The S&P 500 is currently sitting at 1,382.28, up more than 7% on the year.