Third-Quarter Earnings Should Keep the Profit Rebound Going

Stock traders at NYSEThird-quarter earnings season unofficially kicks off after the markets close Thursday when Dow component Alcoa (AA) reports. The expectation for the quarter is that the rebound in corporate profits will continue apace. With so much cash sitting in fixed income or on the sidelines entirely, some big-name beat-and-raise earnings reports could be just the spark to ignite that market-moving dry powder.

After all, the seeds of the market's current rally were planted back in July with strong second-quarter earnings, says Cort Gwon, director of trading strategies and research at FBN Securities. If earnings can give stocks just a few more percentage points of a boost, institutional and individuals are likey to come back into equities.

"There is a lot of money sitting in fixed income," Gwon says. "Once stocks are up 4%, 5% on the year and some confidence returns on the part of longer-term investors, a 1% to 2% return in bonds doesn't look so appealing anymore."

Financials Should Lead the Way

The S&P 500 ($INX) is forecast to post a 24% increase in third-quarter earnings, according to data from Thomson Reuters, marking the fourth straight quarter of earnings growth after nine straight periods of year-over-year declines. And the profits should be spread pretty far and wide: Eight of the 10 major market sectors are expected to show growth over the same period in 2009.

As has been the case throughout the great profit recovery, financials are expected to lead the way with 68% year-over-year profit growth, according to analysts polled by Thomson Reuters. But then, once again, that's more an effect of easy comparisons against weak figures last year.

The second-best performer should be the industrials sector with a 43% profit increase, helped by aerospace and defensive stocks. That puts Dow component Boeing (BA), slated to report Oct. 20, even more in the spotlight than usual -- and might make investors care about airlines stocks once again. The air carriers are expected to post profit growth of more than 720%. (Easy comparisons again.)

Materials, energy and tech are all seen reporting earnings growth of more than 30% -- but analysts expect a case of haves have-nots within those larger groups. The oil and gas drilling industry is forecast to show a 23% drop in year-over-year earnings, according to Thomson Reuters. More happily, tech is predicted to earn a total of $37.5 billion in third-quarter earnings, which would tie its second-best quarter in dollar terms since Thomson started tracking the data 12 years ago.

Among other laggards, the health sector is expected to break even for the quarter, while telecoms are seen reporting a 8% decline in year-over-year earnings.

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taxes have to stop how much are supose to pay evey time u turn around thay want to add enother tax on something it has to stop they want everthing lets tax this lets tax that well ho pays the little guy let put a toll road here y dont u just stop paying for all the free stuff like free lunchs in school. heat for people that cant pay for it. the free ride should be over stop stealing the tax payers money and stop giving it away to other countrys it is ours lower our taxes and put it in our pockets

October 07 2010 at 7:12 PM Report abuse rate up rate down Reply

Our Govt knows that the media is so shallow that they only look at the DOW as to how to judge the economy. The fed is going to do whatever it takes and wright however big IOU's they need to to keep the DOW from tanking.

October 07 2010 at 3:01 PM Report abuse +2 rate up rate down Reply

So now they tout "Profits" instead of Growth & Income. Thats becouse there is no growth. As businesses layed off the overhead went down and profits went up. Dosent take a rocket scientist to figure that out. But there are no jobs. When you loose 9 million jobs and celebrate gaining 100,000 theres something terribly wrong. Loose 9 million jobs, celebration shouldnt even be thought about untill half of those are gained back. So we sink further into a lost decade.

October 07 2010 at 2:56 PM Report abuse +2 rate up rate down Reply

Tax problem solved liberals and progressives pay 91 percent of there wages over 2 million dollars. This is the figure they came up with so why not hold them to it. If you want it you pay it. All who vote democrat and make over 2 million pays 91% tax and social security tax and state tax and local tax and property tax and tell me how much you have left over and see if that is what you want since that is what you suggest everyone else pays and since there are twice as many rich dems then repubs it shouldn't be a problem. Watch how many vote for repubs then. Talk is cheap you want it you do it then we will see if that is what you really want. Have a nice day. Independent thinker.

October 07 2010 at 1:28 PM Report abuse +1 rate up rate down Reply

Lets face it. If your middle class, your screwed. Only people that are gonna help you is you.

October 07 2010 at 1:09 PM Report abuse +6 rate up rate down Reply

When Obama says that taxing a man who earned a million dollars, ONLY $100,000 HE NEGLECTS TO MENTION THE MAN IS ALREADY PAYING $335,000.. making his contribution now $435,000. Now if this "millionaire" is a business man whose business is not earning what it did a few years ago, and now he is dealing with all of his current overhead, same amount of employees, and of course, now Obamacare.. you have to ask yourself.. what does that ONLY $100,000 REALLY REPRESENT.. how many new employees could that money represent? OR how many employees will have to be laid off?

October 07 2010 at 12:59 PM Report abuse +7 rate up rate down Reply
2 replies to piscesbaby36's comment

Might I add that the rich who pay most of the taxes already: Don't use welfare, Don't use medicaid,Don't use medicare,Don't have subidized housing,Pay for their education and their childrens, pay more in property taxes, and when they get old and need a nursing home, you guessed it they pay for it. Maybe the portion of this country who relys on these government programs should start paying into it.

October 07 2010 at 1:12 PM Report abuse +7 rate up rate down Reply

I also forgot to mention, the "millionaire" mentioned above.. is also paying his State and Local taxes...

October 07 2010 at 1:50 PM Report abuse +2 rate up rate down Reply

The players in the market keep manipulating the market and then they take profits at the expense of all general public. I am out of the market and will stay out untill the FEDS raise rates and the market is a true reflection of its real value. Never forget the old saying that stock value is never over ten times earnings.

October 07 2010 at 12:53 PM Report abuse +2 rate up rate down Reply
1 reply to BUFFALO's comment

What stock annalist mean when they talk : Blah , blah , blah , we really don't know anything for sure , blah , blah , blah , a Chimpanzee with a dart throwing at a stock sheet is more accurate than we are , Chimpanzee is right 55% of the time , blah , blah , blah , Market is going to crash and we know it but keep rambling on . You do realize that the upper 3% think we are just like Chattel , we are their subjects to do their bidding , some even think we are not human .

October 07 2010 at 12:24 PM Report abuse +1 rate up rate down Reply
1 reply to hemipwr54's comment
Dr. J. Griffiths

I still doubt sincerely that there will be any "swing-up" to the markets, even with possible good numbers from Alcoa. Until the tax issue is cleared, and the housing market begins to return, I believe that the growth will continue to be "sideways" or, if when Congress returns, it cancels all of the tax extensions, we will again see ourselves going rapidly into another recession

October 07 2010 at 12:07 PM Report abuse +6 rate up rate down Reply
1 reply to Dr. J. Griffiths's comment

Lets take a look at some of the hype regarding the rebound of our economy and why it is a bogus spin that our government is putting on it making it appear better than what it really is. The best way to illustrate this is to use an easy example. Let say that you have a hotdog stand that has 10 employees and your stand sells 1,000 hotdogs at $1.00 each making $1,000 before the economy takes a 40% nosedive. The following year you have to cut the cost of your hotdogs 20% to 80 cents to stay competitive and your sales are down to 600 hotdogs which is a 40% decrease from your previous year. Thus, you lay off 40% of your workers which is 4 of the 10 that work for you. The next year the big economic turnaround occurs and your sales are up a whopping 20% and you sell 720 hotdogs that year. WOW. You raise your prices 10% to 88 cents and hire back two of the four workers that you let go which is a 33% increase of your workforce. The news media and the stock market goes wild over the great numbers. Lets look at the real numbers and the reason the economy is still in decline. It lurks in the math that is used to make it appear the good times are rolling again. With the great new economy this year, you have sold 720 hotdogs which is 20% more than last year at 88 cents that is 10% more than the previous year and is about $634 in sales. But really your sales are still off by about 58% ($634 + 58% = $1,000) You are selling hotdogs at 88 cents which is about 13.6% less than two years ago (88 cents + 13.6% = $1.00) Your workforce is still 25% lower from three years ago (8 employees + 25% = 10 employees) Your rent, taxes, health insurance, Chicago parking, and everything else that did not go down in price with the crash of the economy is still skyrocketing in price. Now, as a business owner or one of the 16-17% unemployed or underemployed who are looking for work, ask yourself this. Why am I still unemployed and so poor when our economy is doing so well?

October 07 2010 at 11:52 AM Report abuse +5 rate up rate down Reply