Economy In Focus As Earnings Season Ends

With the Q1 earnings season effectively over and the next reporting cycle a few weeks away, earnings aren’t the focus this week. The spotlight is on the economy, with market participants looking to handicap the Fed from incoming economic readings.

Consensus expectations now see the September Fed meeting as the earliest when the central bank will make the first rate hike. But for this outlook to take hold, we need to see fresh data showing a more consistent rebound in the economy than has been the case thus far in Q2. This week’s jobs reading and the ISM surveys will help provide more clarity about the evolving economic picture in the current period.

On the earnings front, we will get a trickle of releases this week, with a total 49 companies coming out with first quarter reports, including 6 S&P 500 (SPY) members. Overall, the Q1 reporting season turned out to be very weak, with a disconcerting mix of Energy sector weakness, dollar strength and global growth challenges not only weighing on Q1 results but also causing estimates for the current quarter to come down. While the magnitude of negative revisions for the current period is tracking below what we saw at the comparable stage for Q1, but it is nevertheless negative.

We will discuss what’s happening to current quarter estimates a little later, but let’s focus on the Retail sector for now which has been producing most of the earnings releases lately.

Retail Sector Scorecard   

The Retail sector got off to a good start this earnings season, with aggregate growth rates and beat ratios tracking better relative to pre-season expectations as well as relative to other sectors. But the initial momentum was mostly due to strength in results from online vendors and restaurant operators who were heavily represented in the sample at that stage. The momentum became hard to sustain as department stores and the big-box retailers came out with numbers. Overall, the sector’s Q1 results have been mixed, which isn’t bad given the broad-based weakness in most other sectors.  

As of Friday May 29th, we have seen Q1 results from 39 retailers in the S&P 500 index, out of the 41 total in the index. Total earnings for these 39 retails are up +4.6% from the same period last year, on +5.3% higher revenues, with 74.4% beating EPS estimates and 51.3% coming ahead of top-line expectations.

The charts below compare the sector’s results thus far with what these same 39 retailers reported over the past year.