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Wall St Week Ahead-Oil's drop could leave a stain on earnings

25-Jun-17 13:00

(Repeats story first published Friday with no changes to text) By Caroline Valetkevitch and Rodrigo Campos NEW YORK, June 23 (Reuters) - Heading into second-quarter earnings season, investors are looking for a continuation of strong U.S. company results to justify high stock valuations, now trading near their loftiest levels since 2004. However, drilling a hole into that hopeful scenario is the current bear market in oil prices and an economy showing signs of growth below the pace expected earlier in the year. "A lot of the expectation for a recovery in earnings is predicated on oil prices being around $47-$50 a barrel," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York. "So if you don't get those numbers, you don't get the strong earnings the stock market needs. This is not trivial stuff. It creates a lot of uncertainty and volatility in forecasts." U.S. crude futures have been pressured lower by a supply glut. They've averaged over $48 per barrel so far this quarter, but traded around $43 on Friday and are down more than 20 percent from February, when they hit an 18-month high. U.S. stocks are in the ninth year of a bull run which has been fueled of late by bets on pro-growth policies from U.S. President Donald Trump. However, with the timetable for reforms stretching further into the future, earnings are seen as a critical support for stock prices. With indexes near record highs, there is speculation among Wall Street analysts about whether a correction is due. Earnings expectations have dropped for 10 of 11 industry groups since early April, with only industrials looking better than they did then. The benchmark S&P 500 stock index as a whole is expected to deliver 7.9 percent profit growth, down from 15.3 percent in the first quarter, and below the 10.2 percent forecast in April, Thomson Reuters data shows. On Thursday, Nike will be the first Dow component to report earnings for the most recent quarter. The season heats up in the second week of July. Technology earnings are seen posting double-digit growth, helped by gains in semiconductor companies, and financials are close behind with estimated 8.1-percent profit growth. While lower energy prices can help some sectors such as industrials and transports, as well as boosting consumer sentiment, high expectations for energy earnings growth mean any stumble will be felt broadly. Energy sector profits are seen up a whopping 683 percent from a year ago, when many companies posted losses, according to Thomson Reuters data. Without energy, profit growth estimates drop to 4.8 percent for the quarter. Expectations for the sector will probably have to come down for the second half of the year if low oil prices persist, said David Joy, chief market strategist at Ameriprise Financial in Boston. "The one wild card right now is the price of oil. Expectations that are baked into full-year forecasts assume a higher price for oil certainly than we have now," he said. Energy has been the weakest performing sector so far this year, with the S&P energy index down near 15 percent. OVER-OPTIMISTIC FORECASTS? The drop in oil prices notwithstanding, some analysts have cautioned that Wall Street has been too optimistic about overall earnings. Michael Purves, chief global strategist at Weeden & Co, cut his 2017 S&P 500 earnings estimates from $127 to $116, below the $131.51 consensus, as economic growth and inflation are not as high as expected. "I'm looking for CEOs to start taking down their forecasts for the year," Purves said. In fact, the Citigroup U.S. economic surprise index , a gauge of economic data compared to expectations, this month fell near a six-year low. An Atlanta Federal Reserve model recently forecast second-quarter economic growth coming in at a 2.9-percent annualized pace, down from a previous 3.2 percent. Another hurdle for earnings growth: declining corporate buybacks. "Over the past two years, more than 20 percent of S&P 500 issues have given at least a 4 percent tailwind for (earnings per share) via reduced share counts," Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said in a note. For the first quarter of 2017, that rate fell to 14.8 percent of companies, and there are indications of "even less support" in the second quarter, he said. (Additional reporting and editing by Megan Davies; Editing by Daniel Bases and Nick Zieminski) ((caroline.valetkevitch@thomsonreuters.com; +1 646 223 6393; Reuters Messaging: caroline.valetkevitch.thomsonreuters.com@reuters.net)) ((Wall St Week Ahead runs every Friday. For the daily stock market report, please click )) Keywords: USA STOCKS/WEEKAHEAD

Name	Symbol		Price (USD)	Conv. Ratio	HKD Equivalent
HSBC HOLDINGS ADR REP 5 ORD	HSBC	0005.HK	43.3600	1:5	67.64
SINOPEC SHANGHAI ADR REPSG 100 H ORD	SHI	0338.HK	51.4400	1:100	4.01
CHINA PETRO & CHEM ADR REP 100 H ORD	SNP	0386.HK	79.6300	1:100	6.21
GUANGSHEN RAIL ADR REP 50 CL H ORD	GSH	0525.HK	24.6500	1:50	3.85
CHINA EAS AIRL ADR REP 50 CL H ORD	CEA	0670.HK	29.2000	1:50	4.56
CHINA TELECOM ADR REP 100 CL H ORD	CHA	0728.HK	48.6000	1:100	3.79
CHINA UNICOM HNG KNG ADR REP 10 ORD	CHU	0762.HK	15.0800	1:10	11.76
PETROCHINA ADR REPSNTG 100 H ORD	PTR	0857.HK	61.9700	1:100	4.83
CNOOC ADR REP 100 ORD	CEO	0883.HK	109.0200	1:100	8.50
HUANENG POWR INT ADR REP 40 CL N ORD	HNP	0902.HK	28.6900	1:40	5.59
CHINA MOBILE ADR REPSG 5 ORD	CHL	0941.HK	53.6100	1:5	83.63
SMIC MANFC INTL ADR REP 50 ORD	SMI	0981.HK	5.3700	1:5	8.38
CHINA SOUTH AIRL ADR REP 50 CL H ORD	ZNH	1055.HK	41.3500	1:50	6.45
PRUDENTIAL ADR REPSTG 2 ORD	PUK	2378.HK	45.7500	1:2	178.42
ALUMINUM CHINA ADR REP 25 CL H ORD	ACH	2600.HK	12.2500	1:25	3.82
CHINA LIFE INSURNCE ADR REP 5 H ORD	LFC	2628.HK	15.5000	1:5	24.18
VALE ADR REPTG ONE ORD	VALE	6210.HK	8.1700	1:1	63.72
JINKOSOLAR HLDG ADR REP 4 ORD	JKS	IPO-JSHG.HK	20.7700	1:4	40.50
Last Update (U.S. ET): 23-Jun 16:07

Time (ET)	Headlines
25-Jun 13:00	Wall St Week Ahead-Oil's drop could leave a stain on earnings
25-Jun 12:20	CORRECTED-UPDATE 6-Sears Canada to close stores, cut jobs in restructuring
25-Jun 10:48	UPDATE 1-Key Republican Collins has 'serious concerns' on healthcare bill
25-Jun 10:35	ANALYSIS-Vision and screwdrivers: Macron and Merkel converge on Europe
25-Jun 08:30	UPDATE 1-France's Macron mulls convening parliament in Versailles palace
25-Jun 06:30	Push on with the "great unwinding", BIS tells central banks
25-Jun 06:30	Euro zone lenders dampen global banking recovery decade after crisis - BIS
25-Jun 05:30	MEDIA-MSCI chief says could add 195 mid-sized Chinese stocks - Shanghai Securities News
25-Jun 04:49	Majority of French back Paris Olympic bid - poll
24-Jun 12:39	France's Macron to back push for global environment rights pact

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