The US labor market continues to roll with 136,000 jobs added in the month of September. Although the number was below expectations, combined jobs numbers for the months of July and August were revised higher by about 45,000 more than previously reported.
The earnings season will kick off in mid-October with bank results. According to Factset, as of October 4, 2019, analysts have revised 3rd quarter earnings for the S&P 500 companines to about -4.1% from -0.6% on June 30, 2019. The bottom-up estimates decline is nothing to be despondent about. During the last 15 years (60 quarters), average earnings decline in the bottom-up EPS (earnings-per-share) estimates during a quarter, have been 4.3%. This explains that Wall street analysts are almost always more optimistic about the growth prospects of corporate earnings. However, the final tally of Q3 results will likely see EPS growth approach the positive zone, as actual EPS exceeded initial estimates in each of the last 30 quarters by an average of nearly four percentage points. If the index does report a year-over-year decline in earnings in Q3, it will mark the first time the index has reported three straight quarters of year-over-year earnings declines since Q4 2015 through Q2 2016.
The key thing to watch will be profit margins of companies, as that will put more pressure on them to reduce hiring or even consider layoffs. The profit margins of the S&P 500 companies are expected to shrink to 11.3% vs 12.1% in Q3 2018.
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