Q: Will upcoming earnings reports be hurt by the bad weather?
A: Companies routinely blame bad weather for poor earnings reports. It's usually just an excuse. But this year, companies might actually have a legitimate gripe, and investors might pay the price when it comes to earnings growth.
The brutal East Coast winter is about to rear its ugly vortex in first-quarter corporate earnings due out in coming weeks. Earnings are expected to rise just 0.9%, which is a complete letdown, especially since earnings rose 8% in the fourth quarter of 2013, says Sam Stovall of S&P Capital IQ.
But the cold weather's brunt is even more clear considering that analysts were calling for nearly 5% earnings growth for the first quarter at the start of the year.
The slashing of earnings forecasts for the first quarter are starting to ripple into the rest of the year. Investors now think earnings will only grow 7.7% for the full year of 2014. That's down from the 10% growth expected at the start of the year.
These rapid decreases in earnings projections leave investors with less reason to pay up with current stock valuations, much less push the market up higher still.
Companies may wind up trouncing the expectations, and the weather just ends up being a footnote signifying nothing. But if not, slower earnings growth may be something for investors to price into their models.
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