Breaking News

Q1 Earnings Season On The Horizon

By Peter C. KennyMarket OverviewMar 30, 2016 10:12PM ET,-q1-earnings-season-on-the-horizon-200123405
Q1 Earnings Season On The Horizon
By Peter C. Kenny   |  Mar 30, 2016 10:12PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

US equity markets have managed to maintain a modestly constructive bias this week, in large part due to quarter-end window dressing and Federal Reserve Chair Janet Yellen's talk, given at the Economic Club of New York on Tuesday.

For the week, thus far, the S&P 500 has notched a gain of 1.39%, the Nasdaq has gained 2.15% and the Dow Jones has ticked 1.03% higher. In all three cases there has been a refreshing lack of both pricing turmoil and volatility.

Relative tranquility in energy markets, a calming/dovish voice on the interest rates landscape and a lack of earnings season drama have all contributed to the rather calm waters investors have been treated to ahead of Q1 earnings season. In fact, so calm has the investing terrain become in recent days that the volatility index has traded to lows not seen since August of last year.

On August 14th, the VIX closed at 13.02. Over the subsequent 5 trading days, it climbed to 40.74 or 312%. I am not suggesting that we see a repeat performance of that trade this time around, as many of the drivers for that ferocious selloff are not in play. I am only suggesting that if recent history is any indication, volatility is cheap as we close out Q1.

Thus far this week, the 10-Year yield has barely moved, shedding 6 bps to close yesterday with a yield of 1.83%. Clearly markets and investors have been well positioned this week for Chair Yellen's dovish guidance, confirmation of the FOMC's latest announcement, and her lean in to the increasingly central role and impact that global geopolitical and economic themes have on US monetary policy. As the Fed continues to take a path of forbearance that is predicated upon caution and deliberation, with an eye on the global stage, investors increasingly edge further out on the risk ledge.

As I have suggested in recent contributions, the Fed's hands are somewhat tied in as far as their aspirations for tightening are concerned, given the global construct that has yet to yield much in the way of demand over the past several years. As a result, markets are going to need a degree of reinforcement from a different catalyst if investors hope to see our recent rebound off from February lows remain in tact.

That is where earnings season comes in. Last week we received corporate profitability data for Q4 and it wasn't pretty. As I have discussed, in the final quarter of 2015, corporate profits dropped by 11.5% when adjusted for inventory valuations and capital consumption. That decline follows an unexpectedly large 5.1% contraction in the previous quarter.

I expect that corporate profits, long considered a leading indicator of US economic health, will continue to provide a cautious overhang to the market and to this earnings season. Though corporate profits don't tell the full story, they do provide meaningful insight into what stage of the economic cycle we find ourselves in.

With that as a backdrop and with S&P 500 earnings projections and revenue growth for Q1 at multi-year lows, I would suggest that we may run into some further turbulence in the days, weeks and months ahead in Q2. That turbulence is likely to bring a downshift in pricing with it.

Q1 Earnings Season On The Horizon

Related Articles

Q1 Earnings Season On The Horizon

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email