Companies are due to release third-quarter earnings this week, and investors are bracing for a slew of disappointments and volatile markets, experts say.
Some companies have slashed earnings forecasts for this year, and fears have grown that strong quarters in the recent past were due to cost-cutting measures, central bank stimulus policies and not due to noted gains in sales.
Later this week, Yum! Brands, Costco, Safeway and Infosys will announce third-quarter results.
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“These earnings are going to set the tone for what earnings season will look like overall,” Ben Halliburton, managing director at Tradition Capital Management, told CNNMoney.
“We seem to be seeing some of the worst pre-announcements coming out since we did in 2008.”
The Standard & Poor’s 500 Index, the Dow Jones Industrial Average and the Nasdaq Composite are all up more than 11 percent this year, though disappointing third-quarter earnings could bring an end to the rally, which many attribute to Federal Reserve monetary stimulus measures.
“Since June, we’ve had very much of a Fed-induced rally. People said ‘oh, the economy is slowing, the Fed will help,’” Halliburton added.
“If earnings come out negative, where do we go from here?”
The Fed is currently buying $40 billion in mortgage-backed securities a month from banks, a monetary policy tool known as quantitative easing that works by pumping liquidity into the banking system in a way that lowers interest rates with the aim of encouraging investing and hiring.
The Fed has rolled out similar measures in the past, which have pumped up stock prices in the process, though some analysts fear gains in equities markets might not reflect corporate fundamentals.
“If the guidance isn’t particularly strong, the market might be setting itself up for a little disappointment,” said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio, according to Reuters.
“I don’t see a major correction, but I do see a pullback.”
Editor's Note: The Final Turning Predicted for America. See Proof.
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