WITH analysts’ expectations for second-quarter US earnings at rock-bottom levels, many companies may well beat forecasts, possibly setting up the stock market for gains in the coming weeks.
Analysts’ estimates for second-quarter US earnings have been dialled down sharply since the start of the year, amid concerns a strong dollar will crimp the profits of US multinationals and expectations energy company earnings will drop for a third straight quarter because of low oil prices.
With Alcoa set to kick off results season this week, investors are eyeing a three per cent projected drop in benchmark S&P 500 earnings from a year ago, which would be the first profit decline since the third quarter of 2009, according to Thomson Reuters data.
However, a similarly dismal forecast from analysts for first-quarter earnings proved overly pessimistic, and S&P 500 companies ended up with a profit gain of 2.2 percent.
That has persuaded some strategists to expect similar good news in some sectors in the second quarter, which may well provide a boost to Wall Street.
“If profits surprise to the upside, which is what I think they’re going to do, that is basically going to convince people we don’t have a negative growth problem, that things are better than feared, and that should be positive for stocks,” said Jonathan Golub, chief US market strategist for RBC Capital Markets in New York.
Golub added that he expects “massive beats” again in the energy sector in the second quarter, mirroring a pattern seen in the first.