When taking a look back at all of the economies around the world, you get a general sense 2011 was, well, really not all that bad in the U.S. Granted the economy was somewhat soft but at least there was some growth. Overall, we know things weren’t pretty for the global economy last year, especially the euro zone.
The U.S. economy saw Gross Domestic Product (GDP) grow 2 percent in Q3 2011 and expectations call for at least some Q4 growth (first estimate of Q4 GDP is due out next week). Additionally, no one expects the U.S. economy to shrink in Q1 of 2012. However, this is not the case in other nations. The Office for Budget Responsibility (OBR) expects Q4 GDP shrank in the U.K. and that it will be followed by a marginal 0.1 percent gain in Q1 2012.
Economic activity in the Asia Pacific region is now sputtering as well. Singapore recently cut its 2012 GDP growth forecast to 1-3 percent, down from earlier estimates of 5 percent. Japan is seeing additionally weakness as exports to the European Union hit a 32 year low back in October.
It’s worrisome how and when the continued deterioration in Europe will impact the U.S. Looking at U.S. based multinational corporations may help gauge that and it lends into what I’d like to cover next; Q4 earnings season and expectations.
After seeing strong overall earnings results in the first three quarters of 2011, with many corporations posting quarterly record profits, the outlook has softened quite a bit for Q4. In fact Q4 forecasts have recently been revised down to their lowest levels over the past 12 months. In fact Q4 EPS expectations for the S&P 500 are below both Q3 and Q4 results as the following chart displays.
Additionally, overall margin estimates for S&P 500 companies have seen mixed forecasts, with some expecting a slight uptick in Q4 to 9.0 percent from 8.9 percent, while others are expecting a decline to 8.7 percent.
In the next couple weeks we will be able to delve further into the numbers and gauge results compared to estimates and prior quarters. Nearly two-thirds of S&P 500 companies report Q4 earnings in the last two weeks of January.