4Q estimates slashed on oil; stronger USD remains headwind
Bottom-up S&P 500 4Q EPS fell 7% over the last three months, double the average
cut seen recently heading into earnings season (Chart 2). The stronger dollar hurt,
with the average level of the DXY up 9% YoY. But the 40%+ slide in oil prices was
the real culprit, and Energy's EPS expectations have been slashed by 25% since the
end of September. Ex-Energy, downward revisions were in-line with the typical 3-4%
pre-EPS season cut. Analysts now expect $29.59, with full-year EPS expectations
just under our forecast of $118. This implies 4Q YoY earnings growth of 3% (8% ex.
Fins. & Energy), and sales growth is slated to be 1% (4% ex. Fins. & Energy).
A modest beat is still likely
Consensus estimates have fallen to just below our 4Q EPS forecast of $29.75,
implying a more modest beat than the 3-4% beats we have seen during the past few
quarters. Early reporters' results are a good harbinger: 71% beat on EPS, 62% on
sales, and 52% on both. Growth has remained healthy—the GLOBALcycle indicates
that global growth ticked up in 4Q (~3.5%), with improvement across many EMs and
Europe, and stable conditions in other DMs. We also estimate that buybacks
contributed 1-2ppt to the S&P’s expected 4% YoY EPS growth in 4Q.