Markets have been hampered by several concerns, ranging from macroeconomic weaknesses to a variety of international concerns. Things are looking up as of now, with the Dow (DIA) having posted three consecutive daily increases. However, all three benchmarks have taken losses over a one month period. The blue-chip index leads the pack with a loss of 3%.
Volatility continues to plague the markets, and one of the major reasons for the market’s troubles is weak second quarter results. Lower revenues have been the major disappointment this time around. Additionally, even if certain stocks have beaten revenue estimates, a year-over-year decline has been experienced. In such an environment, adding stocks from the blue-chip index with earnings and revenue beats as well as a year-over-year increase in revenues could be a good move.
Strong Dollar Hurts Q2
A stronger dollar has emerged as one of the main reasons behind the dismal second quarter earnings season so far. Most American multinationals are finding it difficult to beat revenue expectations in the second quarter as a strengthening dollar continues to drag down profits. Though the dollar did not increase significantly during the second quarter, it had a major impact on earnings on a year-over-year basis.
While a stronger dollar makes American goods more expensive in foreign countries, it also boosts demand of foreign goods as they are cheaper. Global growth worries and the inevitable Fed funds rate hike this year are speculated as the main reasons behind the dollar surge.
Q2 Revenue Weaknesses
At this point, a large chunk of Q2 earnings results have already been reported. As of Aug 12, 455 S&P 500 (SPY) companies had already reported their Q2 numbers. Total earnings for these companies are down 2.6% from the same period last year on 4.1% lower revenues, with 70.0% beating EPS estimates and 49.6% beating revenue estimates.
It is clear from these figures that revenues are the major cause for concern. For the Dow, 10 of the 29 components which have already posted results missed revenue estimates. Another 12 have exceeded revenue estimates, but suffered year-over-year declines. These include the likes of Johnson & Johnson (JNJÂ –Analyst Report), McDonald’s Corp. (MCDÂ -Â Analyst Report) and Microsoft Corp. (MSFTÂ –Analyst Report).
