Shutdown threatens to overshadow earnings J.P. Mo

Shutdown threatens to overshadow earnings
J.P. Morgan kicks off third-quarter report season with Friday results
NEW YORK (MarketWatch) — Wall Street weathered the first four days of the government shutdown little worse for wear, but Washington’s budget impasse might be harder to shake off this week, even as investors look ahead to the launch of earnings season.

The S&P 500 (SNC:SPX) rebounded Friday, cutting its weekly loss to less than 0.1%. The Dow Jones Industrial Average (DJI JIA) ended with a 1.2% weekly decline. Both indexes experienced some bouts of heavy selling as the shutdown took hold, but managed to rebound.

Investors are well aware that past shutdowns have tended to inspire pullbacks that ended up being buying opportunities, said Carmine Grigoli, chief investment strategist at Mizuho Securities. In fact, a shutdown that extends beyond 10 days could trigger a pullback of around 5% or so. History indicates the drop would mark a good time to buy, he said.

“That message has been clearly sent” to investors and portfolio managers, Grigoli said in an interview. “That’s why we’ve seen one-day downdrafts” followed by renewed buying interest. See: Shutdown jolts market’s fear gauges: 6 charts.

Meanwhile, if the shutdown drags on, it will threaten to steal the thunder from the start of earnings season, which begins in earnest on Friday with results from Dow Jones component J.P. Morgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co. (NYSE:WFC) .

Analysts have slashed their earnings forecasts for J.P. Morgan, Citigroup (NYSE:C) , Morgan Stanley (NYSE:MS) , and Goldman Sachs Group Inc. (NYSE:GS) over the past month, largely on expectations the banks’ post-crisis earnings boom is coming to an end as a sluggish recovery lumbers along.

More broadly, analysts expect S&P 500 earnings to grow 3% year-on-year in the third quarter, with the financial sector leading the way and energy firms lagging other sectors, according to FactSet.. That’s a step down from the beginning of the third quarter, when forecasters penciled in growth of 6.5%.

On the top line, analysts are looking for revenue growth of 2.6% for the third quarter. That’s also down from expectations on June 30, when analysts were looking for revenues to expand by 3%.

Moreover, FactSet noted that 90 companies in the S&P 500 had issued negative earnings guidance, which the data company said would be the highest figure since it started tracking guidance data in 2006. At the same time, 19 companies have offered positive guidance, which would be the lowest number since FactSet started collecting the data. http://www.marketwatch.com/story/shutdown-thr...2013-10-06