S&P 500 Profit Anxiety Rises After Jobs Data Sink Futures

The last thing stock traders want to see is anything to suggest they are underestimating the weakness in U.S. corporate profits.

That may explain their reaction to Friday’s jobs report, which showed American employers added 126,000 workers to payrolls in March, the fewest in more than a year. June e-mini contracts on the Standard & Poor’s 500 Index retreated 0.7 percent from their close on April 2 as of 6:15 a.m. in Hong Kong, maintaining most of the 1 percent decline in abbreviated trading Friday.

While investors have been able to live with subpar economic data that potentially delay a Federal Reserve interest rate increase, they have viewed threats to company earnings less charitably. Friday’s report showed that hiring slowed even as wage gains climbed. Either could be seen as pressuring profits that already are forecast to fall through September.

“I’m afraid of earnings coming in even weaker,” Ron Anari, the Jersey City, New Jersey-based senior vice president of trading at ICAP Plc, said via phone. “One thing that would be good is increased hiring but after today’s number, who knows,” he said. “Companies have been able to show better earnings because of efficiency and higher productivity and I’m not sure how much longer that’s going to be able to go on.”

Investors already face the longest stretch of earnings declines since the 2008-2009 financial crisis, according to analyst estimates compiled by Bloomberg. Profits are forecast to shrink 5.8 percent in the first quarter of this year and fall

4.2 percent and 1 percent over the next two.

U.S. Headcounts

Friday’s report showed employers in March added the fewest workers since December 2013 and the jobless rate held at 5.5 percent as companies sought to bring U.S. headcounts in line with an economy that throttled back at the start of the year.

The 126,000 increase was weaker than the most pessimistic forecast in a Bloomberg survey and followed a 264,000 gain a month earlier that was smaller than initially reported, the Labor Department said. The median forecast in a Bloomberg survey of economists called for a 245,000 advance. Average hourly earnings rose 2.1 percent from a year earlier.

Companies tempered the pace of the hiring as rough winter weather, tepid overseas markets and a slowdown in energy-related capital investment combined to sting the economy. Even with the moderation in March payrolls, persistent employment opportunities are keeping Americans upbeat and laying the ground for a rebound in spending.

“Overall we would avoid making any strong conclusions regarding the state of the economy,” wrote Michael Shaoul, who helps oversee $10 billion as chief executive officer of Marketfield Asset Management in New York. “But the fact that this weak report follows a number of other poor data points means that both bond and equity markets will be very sensitive to any signs of weakness in the upcoming earnings season.”

Corporate Profits

Alcoa Inc. will start the earnings season April 8. Oil companies are expected to post the worst first-quarter results among 10 S&P 500 industries, with profit dropping 63 percent, analysts’ estimates compiled by Bloomberg show.

Income from four other groups, including producers of household goods, are also forecast to fall, partly because the dollar’s ascent hurt sales for firms like Procter & Gamble Co.

Among S&P 500 members, combined quarterly profit growth has turned negative in 33 instances since 1937, data compiled by Bloomberg and S&P Dow Jones Indices show. While half of them lasted no more than six months, the others almost always dragged on, spanning five quarters on average. Out of the 17 occasions where earnings fell for at least three quarters, 14 occurred within three months of a bear market.

Elusive Gains

Traders have been taking actions in recent weeks to protect gains from the six-year-old bull market that has added $16 trillion to U.S. equity prices. In the options market, bearish puts on the S&P 500 outnumber bullish calls by the most since October 2008, data compiled by Bloomberg show. Puts, which pay off when prices retreat, are sometimes used by investors to lock in profits after stocks have climbed.

Stocks in the S&P 500 just completed the weakest quarter since a drop in the three months through December 2012, and investors withdrew more than $4.7 billion from an exchange-traded fund tracking the gauge in March.

Sustained gains in U.S. stocks have proven elusive. The S&P 500 dropped 2.2 percent in the week ending March 27, posting at least three straight days of losses for the fourth time in 2015. At one point, the measure went 28 days without advancing in back-to-back sessions, the longest stretch since 1994.

“Futures are telling us we may be in for a little bit of a selloff on Monday,” Larry Peruzzi, the Boston-based director of international trading at Cabrera Capital Markets LLC, said by phone. “The question is if this is a one-off number and if we’ll see next month higher if oil starts to recover or weather improves. I don’t think the Fed is going to change any wording, they’ve been very clear, so the first reaction is to sell.”

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