Reality is finally starting to hit the S&P 500 and other key stock indices. The stock market rally doesn’t look so great anymore. The gains from the summer’s orgy over a third round of quantitative easing (QE3) are being erased, and don’t be surprised if the market continues to slump for a while.
Of the S&P 500 companies, 145 have reported their third-quarter earnings, so far. As expected, the earnings were gloomy. Of the S&P 500 companies that have reported third-quarter numbers so far, 63% have missed their revenue expectations. (Source: Reuters, October 23, 2012.)
For the third quarter, earnings for the S&P 500 companies are on track to fall 2.5% compared to the third quarter of 2011.
The S&P 500 earnings disappointment is not a surprise to my regular readers; I’ve been warning them for a while. Unfortunately, fourth-quarter earnings projections for S&P 500 companies are looking weak already. As the earnings season continues, S&P 500 companies are slashing their outlooks and warning about their hardships in the global economy.
E.I. du Pont de Nemours and Company (NYSE/DD)—a component of the S&P 500 and the Dow Jones Industrial Average—reported third-quarter corporate earnings much lower than expected; and to add to the misery, the company slashed its full-year earnings outlook. (Source: The Wall Street Journal, October 23, 2012.)
Xerox Corporation (NYSE/XRX) released its corporate earnings, with profit shrinking 12% in the third quarter. Similarly, the company has also warned about its full-year earnings.
Big S&P 500 companies like 3M Company (NYSE/MMM), United Technology Corporation (NYSE/UTX), and Texas Instruments Incorporated (NASDAQ/TXN) have slashed their earnings and/or revenue outlooks for the full year.
While more data will be released over the next couple of weeks, the corporate earnings warnings for the fourth quarter are worse than the earnings warnings we saw for the third quarter!
If the current stock market rally was hoping to get help from future earnings expectations, the market should look elsewhere. As I have been saying all along, this is not a true stock market rally; it’s a bear in sheep’s clothing. Real stock market rallies do not happen on falling corporate earnings.