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Why So Bearish on Earnings?

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    Factset senior earnings analyst John Butters explains why analysts are bearish on earnings growth.

  • Duration 3:37
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You very -- thinks.

Well when it comes to look at at the health of the economy you may want to forget jobs and take a look at earnings the third quarter season kicks off this afternoon with Alcoa.

FactSet is predicting the entire S&P 500 and headquartered down two point 7% mark in the first lost eleven straight quarters.

Take an assault laid back.

To 2009 doesn't -- Senior he's analyst from fact that -- he joins me now from Boston.

Why are we so bearish about these numbers we expect them to be not so great but why this huge drop in wire expectations looking like that's.

It will whatever -- reasons -- -- that is that we -- -- one of the most negative preannouncement seasons in recent quarters as well.

On the but about a 103 companies the index is giving guidance for the quarter.

And now that number 80% have about 80% have given negative guidance for guidance below expectations.

This is part of the reason we've seen the expected growth rate go from 2% back on June 30.

Down to a decline of two point 7% today and if we finish at negative two point 7% going to be the first year -- year decline in earnings since the third quarter of 2000.

Right taking and that's what I examine introduction to you but -- at the same time if you look at several big name companies of any S&P 500 us first the focus on Alcoa.

We look the stock has had a kind of a rough ride for the year -- looking at Alcoa right now the stock is actually higher they do kind of set the tone as you well.

Don't you think that the analyst community is RD gearing up it is lowered expectations.

They lower their expectations the company beads and all is well the world again.

What actually typically see if you look at the law of averages the numbers do come down and -- companies -- beat the expectations.

But that's not always the case if you look at the previous quarter particularly in terms of sales expectations only 40% of -- company's beat their sales estimates 60% actually -- And yet the market went higher so.

While we do to exit typically see company's -- -- beat expectations it's not always the case.

And really I think the markets are probably now even focus more on the expectations for the fourth quarter at this point.

Were analysts are expecting almost a hockey stick rebound we go from a 3% decline in Q3.

For an expectation of 10% growth in Q4.

Let's talk about some of the sectors that you're watching -- kind of analyze and because in particular if you look at let's start with the financial sector first and foremost a -- heck of a year.

On a percentage basis anyway for the financial sector overall do you think -- they're gonna be some.

Earnings upsides in the financial sector.

Given the financial sector they're expected to be that the the best sector overall terms of view -- growth they're expecting 10% growth overall.

On -- noticed on the companies reporting later this week JPMorgan Chase and Wells Fargo are both expecting 20% growth each on an EPS basis so.

Within the financial sector was certainly seeing strength in the reits and in some of the regional banks and some of the diversified banks as well.

OK what about materials because the materials sector -- -- had a growth rate there down 21%.

Second lowest revenue growth rate for all ten of the sectors figure very concerned.

About materials is that an economic story your opinion.

I -- -- it's it's a commodity story it's a global story you know we've we've certainly seen slower economic growth in China and I think that's having an impact on the commodities.

Typically when you look at the industries are expecting -- the lowest year over year growth and looking at.

Aluminum which we'll get more odd news on -- Alcoa tonight.

Looking at the steel industry and you looking at diversified metals and mining -- Those are three industries expecting lowest growth and again a lot of back can be attributed to slower global growth -- -- from emerging markets not.

Timing is certainly -- -- -- -- an election coming up but John butters thank you very much are going to be watching the numbers obviously right here Fox Business thank you.

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