Markets Brace For Big Oil Profit Plunge

Markets Brace For Big Oil Profit Plunge
Energy companies' profits are expected to have dropped 23%, a collapse of fortune nearly unheard of outside of a recession, and one that has weighed on the stock market.

NEW YORK (AP) — It's just a forecast, and for only one of 10 industry groups in the stock market. Yet it has almost singlehandedly turned what had been a strong earnings season into a weak one.

Profits for companies in the Standard & Poor's 500 index are expected to have grown in the fourth quarter at one of the lowest rates in years, just 2.2 percent. The culprit: Energy companies that suffered as oil prices plunged. Their profits are expected to have dropped 23 percent, a collapse of fortune nearly unheard of outside of a recession, and one that has weighed on the stock market.

Investors will find out just how ugly the earnings are as oil companies report results over the next several days.

So far, things don't look so good. Several oil producers and service companies have announced layoffs and reductions in spending on new drilling projects. BP told workers Monday that it would freeze pay for 2015. On Friday, Chevron posted a 30 percent decline in fourth-quarter profit, a day after Royal Dutch Shell reported a 57 percent drop.

Stocks in energy companies have fallen nearly 12 percent in three months, nearly cancelling out moves up for most other industries. The S&P 500 is up less than 1 percent in that time.

Exxon Mobil reports its results on Monday, followed by BP on Tuesday.

Big Oil, Big Impact

Lower oil prices are good for the economy and most businesses, but they are bad for the stock market in the short term. Energy companies have an outsized effect on the S&P 500 index because they are among the most valuable members of it.

Instead of giving equal weight to each of the companies, the S&P 500 ranks them according to their market value. Exxon Mobil, worth $385 billion, is about 10 times the average value of a company in the index


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