Expectations for the reporting cycle, which starts with big banks’ results on Friday, are souring, with a stronger dollar, bloated inventory levels and uncertainty over the Federal Reserve’s rate-hiking cycle cited as the main culprits by analysts at Goldman Sachs and Morgan Stanley. Companies have to navigate through a challenging environment where company-specific issues are exacerbated by tight financial conditions.
In the past six weeks, bellwether firms like FedEx Corp., Ford Motor Co., Nike Inc., Nvidia Corp., Carnival Corp. and Micron Technology Inc. have either reduced their forecasts or provided a muted outlook, triggering a double-digit rout in most cases. Bank of America thinks more could be on the way. “Things like inventory, labor costs and other latent expenses are wreaking havoc on cash flow,” strategists said. “The market has started to see cracks with some bellwether stocks reporting both top-line and bottom-line misses in recent weeks.”To strategists at Goldman Sachs, a surging dollar that’s headed for a sixth straight quarterly advance is creating a big headache for companies that derive substantial revenues from overseas.
The S&P 500 Index is down 0.7% on Monday following a 2.8% decline on Friday as traders brace for the latest round of earnings announcements. More than 60% of the 724 respondents to the latest MLIV Pulse survey say this earnings season will push the S&P 500 Index even lower. The broad equities benchmark is down 24% this year.