The shutdown showdown in Washington is coming at a bad time for Wall Street.
After consumers constrained their spending last month as fear of a budget battle loomed, corporate America is now feeling the effect.
A record number of S&P 500 companies have slashed their third-quarter profit forecasts, according to an analysis by research firm FactSet.
“It’s getting harder and harder for companies to continue to grow earnings,” said John Butters, senior analyst at the research firm.
“Coming out of the recession in 2009, comparisons were easy,” said Butters. “The bar was low and easy to beat.”
No more. Heading into peak earnings season, Butters said that 91 out of 110 companies in the S&P 500 have lowered their profit guidance, the highest number since FactSet began tracking the numbers in 2006.
JPMorgan Chase’s loss of 17 cents for the quarter, which it reported Friday, was one of the biggest negative surprises. Analysts were expecting $1.19 before the bank’s surprise legal expenses kicked in.
Other companies reporting lower profits than expected include Safeway, Darden Restaurants, YUM! Brands, Adobe Systems and Costco.
Estimates for two big oil companies have also been lowered.
Analysts think that ExxonMobil will earn $1.88 per share for the quarter, compared with $2.09 a year ago, and Phillips 66 is expected to earn $1.13, compared to last year’s $2.97.
So Washington is messing with an already strained second half of 2013.
The government’s shutdown has already shaved more than $2 billion off the economy, according to an analysis by IHS, a global market-research firm.
Most hurt by the shutdown are companies that contract to the government or need government approvals, an analyst said.
The shutdown showdown has also cast a pall over restaurants and retailers as they head into the Christmas season.
“Consumer confidence has started to wane, and the longer it goes on, the greater the magnitude will be,” said Butters. “I am sure companies will be asked about the impact during their upcoming conference calls.”
But while the sagging earnings numbers mean equities aren’t as attractive as last year, some market strategists still believe the stock market has another leg up once the Washington drama is settled.
“There’s still a good opportunity to put up returns well above the risk-free rate and above bonds,” said Troy Gayeski, a senior portfolio manager at SkyBridge Capital. “There are still very compelling opportunities to remain engaged.”
Gayeski estimates that the bull market in equities will continue for the next six to 12 months.
The Dow Jones industrial average closed Friday up 0.7 percent at 15237.11 while the S&P closed at 1703.25, up 0.6 percent.