Oil price drives profits of major US listed firms lower

Profits from S&P 500 companies have fallen by about $25bn (€23.47bn) in the first three quarters of this year, and a further drop is expected before the end of 2015 as energy companies battle with lower oil prices and a sharp rally in the dollar hits exporters.

About 96% of S&P 500 firms have reported third-quarter results so far, and their aggregate net income from continuing operations for the first three quarters is $804bn, compared with $828bn for the first three quarters last year.

On a share-weighted basis, S&P 500 profits were down 3.3% on the year in the third quarter, making this earnings season the worst since 2009.

The energy sector has seen the biggest damage, hurt by plummeting oil prices. Earnings in the sector have dropped 57% in the third quarter year-over-year.

The negative trend in US earnings is set to persist, with analysts expecting a 5% drop in S&P 500 profits in the fourth quarter. The sharp rally in the dollar is also hurting US profits and revenues, according to a Societe Generale team.

“The question for us is not are we in a US profit recession, but how bad is it likely to get and what are the implications for the wider US economy,” they write. But Paul Choi, equity trading strategist at Citi, says “there is a stimulus to consumption that has not shown up yet.”

* Bloomberg