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“The market is going to start thinking about the risk of recession,” he said. “We don’t think we’re going to get one. That’s not our forecast, but if the market starts to price in a higher risk of recession, that’s a negative market event.”
Earnings Central
Knapp and other analysts said earnings could start to be a negative factor for stocks because of the high number of misses on the top line.
“If you look at earnings season closely, 40 percent of the companies are beating on the revenue side,” said Knapp. “This is the worst performance since the recession. Earnings growth is slowing, and revenue growth is slowing.”
So far, of the 116 S&P 500 companies that had reported as of Friday morning, 67 percent had better-than-expected earnings, but 57 percent missed on revenue forecasts, according to Thomson Reuters. Earnings are expected to be up 5.9 percent for the quarter, based on the reports. Revenues, on average, are up 2.8 percent for the quarter. Some companies, like IBM, blamed currency fluctuation for top line hits.
“Revenue misses associated with currency rarely flow to the bottom line,” said J.P. Morgan chief equity strategist Thomas Lee. He said the costs associated with overseas operations could also drop, and that helps.
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