'Developments abroad' are bad news for big US companies
Last week the Federal Reserve kept its benchmark interest rate pegged at 0% to 0.25%, which is where they have been since December 2008.
There was also a slight change in the Fed's rhetoric.
The Fed statement's explained that it was now "monitoring developments abroad," and Fed chair Janet Yellen pointed directly to the market and economic volatility in China and other emerging markets as risks.
In light of that, it's interesting to compare the outlook of large US firms with more global exposure versus those that primarily do business at home.
In a recent note, FactSet analysts shared charts showing projected earnings growth for S&P 500 companies. And what they found was those with more global exposure saw gloomier forecasts.
For companies that generate over 50% of sales in the US, the estimated earnings growth rate in Q3 is 3.1%, and the estimated sales growth rate is 1.4%. By contrast, for companies that generate less than 50% of sales stateside, the estimated earnings decline is -14.1%, and the estimated sales decline is -12.1%, according to FactSet's John Butters.
Some may be quick to attribute the dismal estimates exclusively to the energy sector, given the much lower price of crude oil today versus a year ago.
But even if you took energy out of the analysis, companies in the S&P 500 with more global exposure are still expected to report weaker sales and earnings relative to companies with less global exposure.
For non-energy companies that generate over 50% of their sales in the US, the estimated earnings growth rate is 8.8%, and the estimated sales growth rate is 5.3%. Meanwhile, for non-energy companies that generate less than 50% of their sales in the US, the estimated earnings decline is -4.9% and the estimates sales decline is -3.9%, according to FactSet analysts.
