Hurricane Sandy and the misery it is about to unleash on the east coast is pushing people and businesses to make preparations for widespread flooding and power outages – all of which makes total sense. But, still, some of the preparations are being made rather late into the emergency when in fact we should be prepared for the worst at all times.
Indeed, there is an analogy with investing here: If you wait until markets turn rough before preparing your portfolios for volatility or economic setbacks, you could get caught in the storm.
Barry Ritholtz at The Big Picture makes this point: “People never seem to think about the future before the storm , instead flipping out during or afterwards. Here’s some free advice: The time to read the card in the seatback in front of you is...before takeoff and on the tarmac – not when the oxygen masks drop after the plane dives 5,000 feet.”
Financially, nothing seems out of kilter yet – though U.S. markets were closed on Monday in anticipation of the storm and a number of companies (including Pfizer Inc.) have delayed reporting their third-quarter results. Storm aside, though, the earnings season has been a stumbling point for stocks.
Since the reporting season began on Oct. 9, the S&P 500 has fallen more than 2 per cent, with telecom stocks, tech stocks, energy stocks and staples leading the declines.
Bespoke Investment Group has an update on the season so far, and while earnings have been decent, revenues have stood out as the biggest obstacle. The so-called earnings beat rate – or the percentage of companies topping analysts’ estimates – stands at 60.7 per cent, which is the best of the past four earnings seasons. But the beat rate for revenues is just 44.8 per cent, or the worst since the first quarter of 2009.
Savita Subramanian, equity and quant strategist at Bank of America, pointed out that disappointing revenues have been seen in all sectors, but are particularly prevalent in utilities, materials, industrials and consumer staples.
“Companies continued to underscore weakness in Europe/China and a slowdown in U.S. corporate spending...,” Ms. Subramanian said in a note.