Why Fourth-Quarter Earnings Are Likely to Look Great [Video]

Fourth-quarter earnings season unofficially kicks off after Monday's closing bell with a report from aluminum giant Alcoa (AA). Once again, the profit reports are expected to be a tale of strong profit growth, thanks more to cost cuts than revenue gains.

Analysts, on average, expect the S&P 500 ($INX) to post a 32% gain in fourth-quarter earnings on just a 6% rise in sales, according to data from Thomson Reuters.

Financials will once again lead all sectors with year-over-year profit growth of...wait for it...1,383%. (Easy comparisons are the reason why.) Take financials out of the equation, and that 32% S&P 500 earnings growth rate would drop to 11%, according to Thomson Reuters.

Fourth-quarter 2010 earningsEarnings estimates for financials in the final quarter of 2010 are by no means abnormally high, wrote Thomson Reuters analyst Christine Short in note to clients Friday. Rather, it's just that last year's fourth-quarter numbers were so low.

"Thus, the current earnings estimate for [fourth-quarter] 2010 creates a much higher-than-normal growth rate because of the contrast to weaker than usual earnings in [fourth quarter] 2009," Short wrote.

Primed for a Pullback?

After financials, the materials, energy and technology sectors are expected to have the highest year-over-year growth rates, at 28%, 26% and 13%, respectively, according to Thomson Reuters data. Of the 10 major sectors of the S&P 500, only utilities is seen posting an earnings decline. Analysts see the sector's profits declining 3% in the aggregate, hurt by softer earnings from electric utilities.

But don't be surprised if the market takes a breather even if results come in better than Wall Street expects. The Dow Jones Industrial Average ($INDU) is up nearly 17% since early September, and the S&P 500 has rallied more than 20%.

"People are going to be looking at these earnings to see if this move we've had over the last quarter is really justified," says Kenny Polcari, managing director at interdealer broker ICAP Corporates. "I think we're going to see a lot of better-than-expected earnings, but quite honestly I think that's already baked into the market."

Some profit-taking, however, would ultimately be healthy for stocks, if only to set the stage for more sustainable gains farther out, the veteran NYSE trader says. "Having some profit-taking wouldn't be the worst thing in the world," says Polcari. "I'm kind of hoping we do have some profit-taking on this news because I think the market is kind of ahead of itself."

For more on Polcari's outlook from the floor of the New York Stock Exchange (NYX), see the video above.


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viking103

Somebody tell the Gardeningatnite that Cheney wasn't President and that NAFTA was the begining of American job losses. And it was the Democratic Party that initiated that Trade Agreement. NAFTA, seemed to really set the ground work for the rest of the Trade Agreements that continue to errode American Job Losses.

Seems that most Democrates don't acknowledge that fact, when they continue to blame Republicans for American Job Losses. The Democrates opened the door for greed and the rest is history. Liberals need to read the history of NAFTA and see how good that Trade Agreement has gone for our great Country. What did the we gain from that. Certainly not Jobs like the Dems promised. But that's all forgotten now. The Dems tell a good story but rarely deliver.

January 11 2011 at 2:29 AM Report abuse +3 rate up rate down Reply
sallyanncohen

The only way Americans will enjoy low unemployment and a good stock market is when we get a Congress who will STOP SPENDING AND A PRESIDENT WHO HAS ACTUALLY WORKED IN THE PRIVATE SECTOR - NO MORE COLLEGE OR UNIVERSITY PROFESSORS -- ONCE you have been responsible for a real payroll and had to make a profit you understand much more about how the economy thrives and it is not with high taxes and more regulations and irresponsible spending -- all done by Mr. Obama and the Democrats. The health take over is crushing small business...so fire more Democrats in 2012 and the economy will get better. Hold Republicans accountable - and all of Congress should take a 20% pay cut due to their miserable job performances.

January 10 2011 at 11:43 PM Report abuse +6 rate up rate down Reply
3 replies to sallyanncohen's comment
gardeningatnite

Once again, the profit reports are expected to be a tale of strong profit growth, thanks more to cost cuts than revenue gains.......Laying off 5,000 people means greater profits!....No problem! The question is....why did you have 5,000 (extra) people to begin with? If you can be more cost-efficient, than the entire idea of employing people is meaningless!

January 10 2011 at 8:28 PM Report abuse rate up rate down Reply
4 replies to gardeningatnite's comment
Greg

Google....GEITHNER SAYS U.S. INSOLVENT.......January 10, 2011.................The U.S. government is insolvent. Who says so? Timothy F. Geithner, the U.S. Secretary of the Treasury. ~~~~~ Geithner sent a letter to Congress on Jan. 6, 2011 asking for the debt limit to be raised. ~~~~~ If it is not raised, he warned, the U.S. will default on its debt. ~~~~~ In his words............Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States.” ~~~~~ He didn’t say that the government will be inconvenienced. ~~~~~ He didn’t say that the government would be forced to muddle through by delaying payments, raising taxes, and cutting non-obligatory programs and services. ~~~~~ He said the government will default. ~~~~~ This means that the government doesn’t have enough cash to pay its obligations to the many and sundry persons to whom it owes cash unless Congress authorizes an issue of even more debt. ~~~~~ After the government issues the new debt, its overall debt will be even higher than before. ~~~~~ Unless its obligations that require cash payments are reduced, or unless it finds new sources of revenue, or unless the interest rates that it pays decline, the same situation will surely occur again and occur even faster because its overall debt will have risen. ~~~~~ It will run short of cash to pay its obligations. ~~~~~ A few months back, Laurence Kotlikoff wrote that "The U.S. is bankrupt." Using the government’s numbers properly labeled, he found that the U.S. fiscal gap, which is the difference between the present value of projected spending and revenues, is $202 trillion. ~~~~~ An IMF study of the U.S. finances found that it would have to double taxes to close its fiscal gap. This is an impossibility. It would destroy the struggling economy. ~~~~~ Geithner’s statement confirms those of other analysts outside of the U.S. government. ~~~~~ Congress could take one option, which is to seize the assets of Americans. This is a form of taxation. ~~~~~ Congress can force pension funds to take its bond issues. This would force down the prices of corporate stocks and bonds. ~~~~~ It would devastate the economy. ~~~~~ Furthermore, the two parties are both enamored of big government. Nearly all politicians are sensitive to public demands for free lunches. That is one reason why the fiscal gap is so huge in the first place. ~~~~~ America did not exactly fall all over itself in trying to stop a prescription drug benefit. Consequently, the government is postponing actions to close the fiscal gap. ~~~~~ One fine day, there will be a discontinuity. ~~~~~ There will be a many-sigma event. ~~~~~ There will be a fiscal earthquake or a market earthquake or some combination of both. ~~~~~ This will not be a pleasant experience for Americans, but those in government have little reason to fear it. ~~~~~ They can use such a "crisis" as the excuse for more radical government action. ~~~~~ The government can demand even more power or simply exercise it, even if the results are to make matters worse for Americans. ~~~~~ Since the insolvency of the U.S. is a fact and a fact that implies hard times ahead for anyone who depends on government, it is prudent to take measures to make oneself as independent of government as one possibly can........

January 10 2011 at 8:09 PM Report abuse +3 rate up rate down Reply
bushwasanidiot

THANKS WACK JOBS FOR THE ECONOMIC MESS!!!!!!!!!!

January 10 2011 at 7:36 PM Report abuse -4 rate up rate down Reply
Iselin007

How about bring an American to work month?

January 10 2011 at 1:16 PM Report abuse +5 rate up rate down Reply
Iselin007

They should have trigger happy immigration officials raid every jobsite in the USA! Then some of the 4rth earnings would go to American citizens!

January 10 2011 at 1:14 PM Report abuse +3 rate up rate down Reply
Iselin007

They create jobs just by having the foreign signs taken down and making them reprint them in English!

January 10 2011 at 1:12 PM Report abuse +3 rate up rate down Reply
Iselin007

Why issue visas their coming in the back door any way!

January 10 2011 at 1:11 PM Report abuse +3 rate up rate down Reply
Iselin007

What next restock the streams with rubber fish so they can cut costs on restocking for years to come? How about some rubber cheese on the cheese lines you only got to bury the people once!

January 10 2011 at 1:09 PM Report abuse +3 rate up rate down Reply