Wall Street consensus is that S&P 500 earnings will grow just 4% year-over-year in the quarter, a far cry from the long stretch of double-digit earnings growth just completed. But many analysts are growing more optimistic that this profit season will be surprisingly strong.
"We've seen very few pre-announcements of companies missing their numbers," notes Georges Yared, of Yared Investment Research. "I think we'll see a fair bit of optimism next week. Portfolio managers will want to [buy] companies they think will have solid second quarters."
But if banks and financials report earnings below expectations, substantiating fears of broader fallout from the subprime-lending bust, bond yields could eventually start to tick higher again, notes Doug Roberts, chief investment strategist at Channel Capital Research. That could hurt equities.
This is good synopsis of the current situation. I would add the following:
1.) 4% earnings growth is a pretty low hurdle to hit, especially with a fair number of companies having decent international market exposure. Also remember that analysts typically turn very conservative when the economy gets weak.
2.) When financial companies report, pay very close attention to the details of the announcement. If a company misses earnings, find out why. If we see a slow build of bad reports from the financial sector because of mortgage/loan issues, we could see some some spillover into the larger market.
3.) Awhile ago I commented that Fed Ex's announcement would be the announcement for other companies. "The quarter was weak but so was overall growth. Signs are business is picking up." I would expect a fair number of companies to make similar reports.
4.) Last quarter there were a lot of companies that surprised on the upside thanks to international sales. I would expect to see the same thing this quarter.
