Why Q3 Earnings Season Ends With a Whimper

The major indexes are on track for a modestly positive session, following stronger gains earlier in the week with market participants surprisingly showing a lot more comfort with the prospect of the Fed getting started with the tightening process in next month’s meeting.

This sanguine mood will likely continue next week, though thinner trading volumes in the run up to the holiday could produce unusual swings in the market. Next week’s data calendar is on the light side as well, with the first revision to the Q3 GDP reading on Tuesday and the October Personal Income & Spending report on Wednesday as the likely major market movers.

The Conference Board’s Consumer Confidence survey on Tuesday could also be important given the coming holidays, with the housing and durable goods surveys likely not packing that punch.

None of next week’s economic readings, however, have Fed implications. The next major data point that will have a bearing on the market’s Fed expectations will be the November jobs report coming out December 4th.

As we have mentioned in this space in recent days, lift-off is effectively guaranteed in the mid-December Fed meeting unless the next jobs reading comes up short. That doesn’t seem likely given what we have been seeing in recent economic data.

The earnings season has effectively ended as well, though a number of retailers and consumer companies still have to come out with Q3 results. GameStop (GME), the two new Hewlett-Packard companies — Hewlett Packard Enterprises (HPE) and H.P. Inc. (HPQ) — and Tiffany (TIF) are the only notable reports next week.

As regular readers know, it was a weak earnings season overall, with growth non-existent, companies struggling to meet even the much-lowered top-line expectations and estimates for the current period continuing to slide under the weight of global growth questions and the strong U.S. dollar.

The dollar headwind isn’t expected to end any time soon given the Fed outlook, which means that market participants will have to contend with continued earnings weakness even as the Fed starts removing the ‘punch bowl.’

Sheraz Mian
Director of Research

Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports.
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