After the stock market mania over the past week and a half, you may think Corporate America has contributed to the unrest by reporting a big downturn in profits. After all, profit is what should drive stock prices over the long term.

But that hasn't been the case. During this earnings season, a vast majority of companies -- 69% of the S&P 500 -- have reported earnings that were better than analysts were expecting. For the S&P 500 overall so far this earnings season, earnings are up an impressive 18.9% from last year's levels.

What Happened Last Week

Last week, Disney (DIS) led the charge reporting earnings of $0.78, easily outpacing the $0.72 analysts expected. But that wasn't enough to keep shares from tumbling on a weak outlook.

At Macy's (M), revenue grew 7.3% to $5.94 billion, and earnings per share of $0.55 topped the $0.49 analysts had expected. The retailer had very upbeat comments in its earnings report, showing that maybe we're writing the consumer off too quickly.

A broad look at the S&P 500 shows that, on average, companies have reported earnings that were 7.2% higher than expectations, with only telecom coming in lower than expected. Information technology and financials have shown the most surprising earnings on the upside.

Sector
Above
Match
Below
Total Sector Surprise
Reported
Index
Consumer Discretionary
77%
9%
14%
10%
64
79
Consumer Staples
69%
13%
19%
1.4%
32
41
Energy
71%
0%
29%
6.9%
41
41
Financials
67%
9%
25%
12.4%
81
81
Healthcare
73%
16%
10%
5%
49
52
Industrials
65%
9%
26%
3.8%
57
60
Information Technology
81%
8%
11%
12.8%
63
75
Materials
63%
7%
30%
1.2%
30
30
Telecom
38%
25%
38%
(4.6%)
8
8
Utilities
55%
12%
33%
2.6%
33
33
S&P 500
69%
9%
21%
7.2%
458
500
Source: Capital IQ Consensus Estimate, a division of Standard & Poor's.

What to Watch for This Week

It's a focus on retail this week with Home Depot (HD) and Wal-Mart (WMT) highlighting the earnings reports. Analysts are expecting earnings per share of $0.82 and $1.08, respectively. With a market focused on consumer confidence and a shaky housing recovery, there will also be a lot of focus on what management sees for the third quarter.


Dell (DELL) reports earnings after the bell Tuesday, giving us a peek into the health of the PC market. Analysts are expecting earnings per share of $0.49.

We'll be providing our feedback on these earnings reports as they happen throughout the week. Until then, reading earnings reports and listening to conference calls can give you a head start on analyzing what's being reported.

Motley Fool contributor Travis Hoium owns shares of Disney. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of Home Depot, Disney, and Wal-Mart, as well as creating a diagonal call position in Wal-Mart.


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11 Comments

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ieyun313

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August 26 2011 at 2:13 AM Report abuse rate up rate down Reply
Eddie

Earnings are up 18.9% over last year's levels, and so the market should be up. But all of the negative hype in the media keeps scaring all of the novice investors into selling. Panic selling is a horrible investment strategy. The lower the market goes, the more that the experienced investors like Warren Buffett buy.

August 18 2011 at 12:34 PM Report abuse rate up rate down Reply
savemycountry911

propaganda

August 16 2011 at 9:28 PM Report abuse rate up rate down Reply
billnyc52

I know why corp is making more money------they are still sending as many jobs as they can out of the USA TO any place that will have cheap labor. I have a friend who works for a very large company (or should say did work), and lost his job last week along with 50 co-workers for it went to India. They told all 51 of them the reason is its alot cheaper to run the dept. over there. It will help save the comp. over 200 hundred thousand a year. How come free trade only hurt the USA and helped all the other countries. It seems we are the only ones bleeding jobs. Oh he will get 26weeks of unemployment and they paid him for his two week vacation for this year. He was with the comp. for 28years. Yes corp america is making lots of money off the back of the few middles class that is left and they just did not kill off yet--give time and i'm sure they will finish the job soon. GOD BLESS AMERICA

August 16 2011 at 9:41 AM Report abuse -2 rate up rate down Reply
1 reply to billnyc52's comment
wch2011

Just look for the "union label" if you want to know why jobs go over seas.

August 16 2011 at 12:04 PM Report abuse rate up rate down Reply
hemipwr54

Yep , Computers are at it again , they threw the switch and the Computers are in control again the algorithms and computations are flying , one goal in mind MONEY !

August 15 2011 at 6:17 PM Report abuse rate up rate down Reply
williewunderlich

Absolutely. Corporate earnings have been strong all summer. I still suspect that the stock market blip last week was an irrational response to the S&P credit downgrade press release. The 5% drop the previous Thursday was probably induced by short selling by hedge funds with an insider-trading tip about the impending S&P downgrade. These panic attacks were magnified by computerized trading. In short, the recent short selling scam was NEVER about corporate earnings, prices, or market fundamentals this summer. Now, if only the media would report the facts for a change...

August 15 2011 at 6:12 PM Report abuse rate up rate down Reply
1 reply to williewunderlich's comment
mascjock75

sorry willie.. you miss the point.. the biggest expense corporatations have is WAGES.. cut out jobs and the profilts go up.. thats corporate finaance 101. The problem is.. this is only temporary.. because these corps are not bring new and better products.. they are getting rid of jobs or sending them overseas.. which means.. more people in this courntry lose their jobs.. which means.. MORE HOUSEING FORECLOSURES less money to buy products.. just wait.. another 6 months and these corps will be missing the estimates.. and if you look at the proposed estimates from a couple of years ago.. who cares that they met a downgraded estimate by a few cents.. nows the time for companies to hire and expand and come up with new and innovative ideas.. it may cost profits in the short run.. but it will serve far better for overall longevity

August 15 2011 at 8:11 PM Report abuse +1 rate up rate down Reply
Sam Das

Markets trend to look 180 days or six months ahead...it moves profit driven and generally some other external influences...hence it is most likely stay linear. Time to watch is mid October and after that the trend is upwards slowly.

August 15 2011 at 5:27 PM Report abuse rate up rate down Reply
clindroth

I sent this to the SEC Friday. “High-Frequency Short Sellers are Naked” Do you know what this means? If you don’t; you need to find out. It will change how you invest for your future and retirement. Cliff Lindroth, San Diego CA
8/12/11

August 15 2011 at 4:56 PM Report abuse rate up rate down Reply
1 reply to clindroth's comment
kernershort

Don't worry about the short sellers. They would be foolish to try to drive down a stock if the company is doing well. Besides, a short can only realize a profit by buying back the stock (covering his position). So the trade is ultimately a wash. Short sellers are not at fault for market drops. Economic dislocations, bubbles, high interest rates or misguided government policies are.

August 17 2011 at 9:59 AM Report abuse -1 rate up rate down Reply