NEW YORK (Reuters) - A trio of hurricanes likely hurt results of insurers and other U.S. companies in the third quarter, but a stronger economy may have helped to offset the damage.
Third-quarter results from S&P 500 companies over the next several weeks are expected to show slower profit growth than in the past two earnings seasons, the slowest in a year, partly because in the same 2016 period U.S. earnings reversed a year-long profit decline.
Yet results also will reflect a hit from storms in the southern United States and Puerto Rico in a broad range of industries including energy, transportation, chemicals manufacturing and retail.
“For both macro data and earnings, (the hurricanes) create more uncertainty,” said Bob Doll, chief equity strategist at Nuveen Asset Management in Princeton, New Jersey.
Analysts expect S&P 500 earnings rose just 4.3 percent in the third quarter, with sales growth of 4.4 percent, according to Thomson Reuters data. That profit forecast is down from about 6.5 percent in late August, just before the storms.
Earnings grew 15.3 percent in the first quarter of 2017 and 12.3 percent in the second.
While other companies could eventually benefit from rebuilding of homes, businesses and infrastructure following the storms, the near-term effect on results is negative, strategists said.
Jonathan Golub, chief U.S. equity strategist at Credit Suisse Group in New York, said his S&P growth estimate takes into account a 2-percentage point hit from the hurricanes, though he said it was difficult to gauge the exact impact.
At the same time, investors are likely to look past the earnings impact, since the storms are a non-recurring event, he said.
American International Group (AIG.N) this week said it expected to book pre-tax catastrophe losses of $2.9 billion to $3.1 billion.
Analysts now expect S&P 500 insurance companies’ earnings dropped about 45 percent from a year ago, while overall financials fell an estimated 9.1 percent, the weakest forecast among S&P sectors, according to Thomson Reuters data.
U.S. companies had some factors working in their favor in the quarter, though, including surprisingly strong economic data, including readings on the manufacturing and services sectors.
The stronger economic data and the recent tax reform proposal by the Donald Trump administration have helped stocks set a string of record highs heading into earnings season.
Many investors will want to see evidence that earnings can justify high multiples, with the S&P 500 .SPX now trading at about 18 times expected earnings, above its long-term average of 15.
The U.S. dollar index .DXY, whose average in the third quarter was down 2.6 percent versus a year ago, also should benefit results.
“Tech derives the biggest percentage of any sector of revenues overseas, so all else being equal, that’s a big boost,” said David Joy, chief market strategist at Ameriprise Financial.
While energy is expected to have the biggest year-over-year profit gain because of the oil price recovery, technology forecasts have shown the biggest improvement since July 1, the data showed.
For graphic on S&P 55 earnings growth, click: here
Reporting by Caroline Valetkevitch; Editing by Nick Zieminski