Wall Street
Richard Drew/AP
By Caroline Valetkevitch

A long hoped for improvement in the economy appears to be manifesting itself in second-quarter U.S. earnings, but the next two weeks could be the real test.

Companies such as General Electric (GE) and Intel (INTC) have reported solid results. In addition, GE believes now is a ripe moment to spin off its private label credit card division in the hopes growing consumer demand will make it more attractive.

Intel declared that personal computer sales have stabilized, while it forecast third-quarter revenue above Wall Street's expectations.

Profit growth for the second quarter is now estimated at 6.7 percent -- excluding results from Citigroup (C), which was hit by a big adjustment from a mortgage settlement -- better than where they stood at the end of June.

In addition, 68 percent of S&P 500 (^GSPC) companies so far are beating analysts' profit expectations, above the 63 percent long-term average, according to Thomson Reuters data. A similarly high percentage of companies are beating revenue forecasts.

"Analysts may be underestimating the level of prospective improvement in the second quarter," wrote Carmine Grigoli, chief investment strategist at Mizuho Securities in New York.

The latest profit estimate is up from a July 1 forecast of 6.2 percent, while revenue growth, now 3.2 percent, is on track to be the highest since the third quarter.

Still, it's easy to overestimate the excitement. Many of the early reporting is by financial companies, not always the best barometer of Main Street activity.

The next two weeks, however, will see 60 percent of the S&P 500 release their results. That is key for investors looking for confirmation the anticipated economic rebound from the first quarter is more than just weather related.

Among the companies set to release figures are Apple (AAPL), McDonald's (MCD), Coca-Cola (KO), and Caterpillar (CAT). So far in July, six of 10 S&P sectors -- particularly health care, consumer staples and energy -- have shown upward revisions from June, according to Citigroup.

"The second quarter is going to be much stronger than the first for the reasons we all know, the weather. Investors are trying to decipher whether this improvement is a weather-related bounce or if there's actually internal growth happening," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

The U.S. economy contracted at a 2.9 percent annual pace in the January-March period, its worst performance in five years.

Recent jobs and other economic data suggest the economy was growing briskly heading into the second half, with growth forecasts for the second quarter now topping a 3 percent annual pace.

June's payrolls report showed a surge in job growth and the jobless rate closing in on a six-year low.
One promising sign for the second quarter: typically pessimistic analysts' forecasts, which most S&P 500 companies still tend to beat, declined just 2.2 percentage points between April 1 and July 1.

That is the smallest overall decline since the first quarter of 2011, Thomson Reuters data showed, and about half the average decline seen in the last five years.

Mike Jackson, founder of investment firm T3 Equity Labs in Denver, said his research shows eight out of the 10 S&P 500 sectors -- all but staples and utilities -- should post surprises this quarter.

"It probably suggests the earnings increases are occurring across a broader sector of the economy than what was previously believed," he said.

GE's quarterly report Friday showed the profit margin for its industrial businesses, a closely watched barometer by Wall Street, expanded 0.2 percentage point to 15.5 percent.

To be sure, not all reports are positive. Container Store Group (TCS) and Lumber Liquidators (LL) both warned about upcoming results, suggesting that retail weakness remains.


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26 Comments

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Iselin007

They have to really BS hard just to make it to the Holidays in the Fall and Winter. Suddenly the paperless society is stocking up for "Back to school sales" Watch for those coming earning reports. Just what we need more grads in 2015, The crap economy can't even keep up with the ones that graduated several years ago because firms are importing their workers!

July 21 2014 at 3:40 PM Report abuse -2 rate up rate down Reply
Iselin007

d.barack
Hey ISE are you sure your ancestors didn't walk around on their knuckles like deckhag's did ?
--------------------------------------------------------
No way, my ancestors married women or else I wouldn't be here.

July 21 2014 at 3:01 PM Report abuse -3 rate up rate down Reply
rrob.smythe

Hats off to the FED for pumping up the stock market. This economy will fall apart in a N.Y. minute if the printing of money stops. Investors have all eyes on Yellen's actions. She will hold the key to the strengthening of our shaky economy. The downside of that, is the devaluation of our currency.

July 21 2014 at 12:10 PM Report abuse +5 rate up rate down Reply
1 reply to rrob.smythe's comment
Iselin007

The real economy is already slowing. Fox Business said most Americans lost 43% of their wealth.

Nobody is really happy outside of Wall St.

July 21 2014 at 3:12 PM Report abuse -2 rate up rate down Reply
jim.lapt

I must go too. My hubby and I are going to the trailer park community pool to meet some of our Vassar grads for lunch and cocktails.

July 21 2014 at 11:53 AM Report abuse +2 rate up rate down Reply
jim.lapt

I have to go meet up with some of my hubby's Vassar grads. We are going down to the community center pool for lunch and cocktails. All the rednecks go to the swimming hole down the road, getting drunk on moonshine and playing stupid redneck games. How juvenile.

July 21 2014 at 11:46 AM Report abuse +2 rate up rate down Reply
hecd.ag

Cons, I can't stay around here 24/7 like you shut-ins can. But I'll check back on you children a little later. I can always use a good laugh.

July 21 2014 at 11:32 AM Report abuse -1 rate up rate down Reply
1 reply to hecd.ag's comment
jim.lapt

I'll meet you at the pool darling.

July 21 2014 at 11:53 AM Report abuse rate up rate down Reply
scottee

we are a country based on lies and debt. how is that sustainable or honorable and what to do about it????

July 21 2014 at 11:09 AM Report abuse +2 rate up rate down Reply
Iselin007

You know the earnings are going to eventually come out of the American citizens pocket.

July 21 2014 at 10:50 AM Report abuse rate up rate down Reply
COMMON SENSE

Here is what happened on January 1st 2014: You Liberals are doing a great job.

Top Income tax bracket went from 35% to 39.6 %
Top Income payroll tax went from 37.4% to 52.2 %
Capital Gains tax went from 15% to 28 %
Dividends tax went from 15% to 39.6 %
Estate tax went from 0% to 55 %

Remember this fact: if you have money, the democrats want it. These taxes were all passed only with democrat votes, no republicans voted for these taxes.
These taxes were all passed under the affordable care act , aka Obamacare.

We are better off than we were Four Years Ago.

National Debt
2009: 10.6 Trillion
Now: 16 Trillion
Treasurydirect.gov

Food Stamps
2009: 32.2 million people enrolled
Now: 46.2 million people enrolled

July 21 2014 at 10:18 AM Report abuse +3 rate up rate down Reply
2 replies to COMMON SENSE's comment
jim.lapt

Me and my hubby are rich so we don't care. The government knows how to spend the money better than we do.

July 21 2014 at 10:28 AM Report abuse +2 rate up rate down Reply
scottee

why tax us at all??? if The Fed can just print dollars with no correlation to anything???

July 21 2014 at 11:09 AM Report abuse +3 rate up rate down Reply
1 reply to scottee's comment
Iselin007

They need to print more money just to make up the wages lost to crap jobs. Just drop off a few grand off each week to the people unemployed, stuck in the not in the labor force, and the under employed because this economy isn't going anywhere but down.

July 21 2014 at 3:28 PM Report abuse -1 rate up rate down
hecd.ag

So many conservatives are SO OLD.

Thankfully, there is a cure for them. Time.

The future looks bright without them around.

July 21 2014 at 9:55 AM Report abuse -4 rate up rate down Reply
1 reply to hecd.ag's comment
scottee

the people who work for a living (conservatives) are overwhelmed by the people who vote for a living (liberals).

July 21 2014 at 11:10 AM Report abuse +1 rate up rate down Reply