Goldman warns on Q3 S&P earnings

When it rains, it pours:

3Q 2014 earnings preview: The dollar, oil prices, and earnings
Global growth concerns and FX headwinds put a negative spin on this earnings season. We expect revenue results will disappoint following weaker macro data and dollar strengthening. Bottom-up consensus estimates $29 of EPS for 3Q 2014, implying 8% growth versus 2013. Consensus expects Telecom and Health Care to post the strongest year-over-year quarterly earnings growth in 3Q while Consumer Staples estimates imply a year-over-year EPS decline. 76% of S&P 500 market cap reports from October 13 – October 31; 53 firms report next week. See pages 12-13 for the calendar.

Expect disappointing revenue results and negative EPS guidance
Weaker macro data and dollar strengthening increase the likelihood of sales misses. We also anticipate increased negative earnings guidance as companies quantify the FX headwind. The net impact of oil changes on index-level EPS tends to be modest as firms benefit from lower input costs.

Domestic-facing stocks should report better relative results
We believe domestic-facing stocks will be less likely to miss estimates compared to those with Western Europe revenue exposure. We recommend investors buy a portfolio of the most domestic-facing S&P 500 stocks (Bloomberg ticker: GSTHAINT) versus stocks with the most Western Europe revenue exposure (GSTHWEUR).

Economic growth drives our long-term EPS forecasts
In our earnings model, US and global growth are more significant drivers than currency or oil prices. Economic growth changes associated with moves in the dollar or oil prices will have a greater impact on our earnings estimates than the moves themselves.

3Q consensus estimates fell 3% during the quarter; Energy EPS fell 8%