Busiest Day of Q3 Earnings Season

This morning’s Caterpillar (CAT) report touches on all key issues that are weighing on the corporate earnings picture. These range from global growth concerns to the impact of the strong U.S. dollar and the downturn in the global commodities complex that is a major problem for a big mining supplier like Caterpillar.

The company lowered its outlook for 2016, citing ‘weak economic growth in United States and Europe… It also reflects a slowing China, Brazil in recession and continuing weakness in commodity prices.’ The company is doing a good job in keeping its costs under control, but it is the low demand environment in its key end markets — particularly in Brazil and China — coupled with a strong U.S. dollar, that is keeping it down.

Caterpillar shares are down more than -23% year to date and will likely be a drag on the Dow Jones Industrial Average index, offsetting some of the gains in that index due to McDonalds’ surprisingly strong numbers today. McDonalds seems to be getting its mojo back, with the fast-food chain beating on the top- and bottom-lines, with U.S. same-store sales growing for the first time in two years.

Including this morning’s super-busy line-up of reports, we now have Q3 results from 147 S&P 500 members that combined account for 33.1% of the index’s total market capitalization. Total earnings for these 147 index members are down -0.6% on -2.7% lower revenues, which is weaker performance than we have seen from the same group of companies in other recent quarters.

The overall picture for Q3, combing the actual results 147 S&P 500 members that have reported results to estimates for the still-to-come 353 index members, is for total earnings to decline -3.8% from the same period last year on -5.1% lower revenues.

Estimates for the current period are coming down as companies report Q3 results and guide lower for the current period. Total Q4 earnings for the S&P 500 index are currently expected to be down -6.1% from the same period last year, which is down from an expected decline of -4.7% just a few days back. The magnitude of negative revisions to the Q4 earnings estimates is greater than what we saw in the comparable periods for the preceding two quarters, indicating that the earnings picture is weakening.