PROSPECTS for corporate earnings are dimmer in the coming quarters – even though reports so far this quarter have been relatively bright.
Third-quarter reports among the big names have been reasonably solid, with Google, McDonald's and others reporting strong results. But, unless there’s a turnaround in the outlook for the US economy, the next few quarters may be less rosy.
Currently, the market is focused on Europe. Hope for a series of summits designed to find a way to solve the growing Eurozone debt crisis buoyed the Standard & Poor’s 500 index to a 1.1 per cent gain for the week and put the index at the top of a recent range it has struggled to break through.
With so much focus on Europe, earnings – even with most companies beating expectations – have been given less of the spotlight. At the same time, S&P 500 earnings forecasts for the fourth and first quarters have come down since the start of October, especially in the materials, energy and financial sectors, according to Thomson Reuters data.
Much of what’s driving worries about earnings is related to expectations for less demand from Europe and other parts of the world, including China, where indicators show growth is slowing.
The sovereign debt crisis in Europe has plagued markets for months, and the US economy has been a worry, too, with the nation’s high unemployment rate among the chief problems. Much of third-quarter profit strength stems from international revenue growth, according to a report.