3 Things to Expect When Dow Earnings Season Kicks Off

A new earnings season starts with Nike's report next week for the Dow. Here's what to expect.

Jun 20, 2014 at 4:30PM
Longview

The stock market has been rising sharply in recent weeks, sending both the Dow Jones Industrials (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) to record heights. For the most part, favorable economic data have been the primary culprit for recent gains. But next week, the Dow's earnings season kicks off when Nike issues its report, to be followed by a flood of releases in following weeks. With that in mind, here are three things that investors in the Dow Jones Industrials and the S&P 500 should pay attention to as earnings season approaches.

Better Wall Street

1. Big players can skew results for an entire industry
Often, you'll see sector-wide pronouncements about earnings growth for a particular industry. Before you assume that those conclusions apply to every company within that industry, look at the methodology used to establish sector growth rates.

For instance, as a recent FactSet Research report showed, analysts expect the telecommunications sector to be the best-performing industry in the S&P 500, with earnings growth of almost 23%. But all of that growth is attributable to Dow telecom giant Verizon Communications (NYSE:VZ). Take out Verizon's influence, and telecom earnings acually shrink by almost 7%. Similarly, financial stocks are expected to bounce back sharply in the second half of 2014 compared to slight declines in the first half. But JPMorgan Chase (NYSE:JPM) is the outlier in this group, with second-half earnings per share seen more than doubling from the year-ago figure and accounting for about 40% of the growth rate for financials broadly.

Www
Image source: Flickr.

2. Don't expect lowballed earnings reports this quarter
Traditionally, stock analysts tend to reduce their growth estimates in the months before earnings season starts, and then the actual results turn out to be better than those pessimistic projections. This time around, though, analysts seem to have stopped trying to use that trick, as downward revisions to earnings estimates have been minimal.

Specifically, since the end of March, the estimated overall earnings growth rate has slid from 6.8% to 5.2%. That's the smallest markdown in three years, and means that companies will have more trouble beating expectations than they have in the past. That doesn't mean growth will evaporate, but it does suggest that the positive reaction from growth could be more muted than usual.

3. Prepare for a topsy-turvy season
Not all industries are equally healthy, and that means you could see some whipsawing in investor sentiment, especially within the Dow Jones Industrials. After Nike, the Dow's banking stocks are typically the next to report, and with expectations for financials to suffer another year-over-year quarterly drop in earnings -- the only sector to do so -- Dow investors could start the season off on a negative note. That bad news could send the Dow stumbling temporarily, until better-performing sectors report and provide another perspective on earnings season.

Earnings season is a valuable way to gauge the success of the companies in your portfolio. For now, investors appear optimistic about the prospects for a solid second-quarter Dow earnings season -- albeit with inevitable bumps in the road.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers