Double-digit profit growth may return in second quarter

Thu Jul 3, 2014 3:07pm EDT
 
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By Angela Moon

NEW YORK (Reuters) - With all the hoopla over the Dow topping 17,000 out of the way, the market's next focus will be whether the fast-approaching earnings season can justify U.S. stocks continuing their climb further into record territory.

Many factors point to a second-quarter earnings season poised to surprise substantially to the upside, with an outside chance that profits for S&P 500 .SPX companies could return to double-digit growth for the first time in nearly three years.

On the heels of Thursday's strong U.S. employment report, some economists have begun talking up prospects for a 4.0 percent annual growth rate in gross domestic product for the April-through-June period, a dramatic snap back from the first quarter's contraction of 2.9 percent.

"It's a strong report that capped off a strong quarter. Everything in the report points to 4 percent growth in the second quarter," said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, referring to the jump in June's nonfarm payrolls.

Analysts polled by Reuters are calling for earnings growth for the second quarter of 6.2 percent, and a return to double digits in the third and fourth quarters: 10.9 percent and 11.9 percent, respectively.

The last time that S&P 500 earnings achieved double-digit percentage growth was the third quarter of 2011 - at 18 percent.

But some signs suggest the 10 percent handle could be breached a quarter earlier by the time all of the second-quarter numbers are in.

"There is a chance that earnings could see double digits this quarter, but only a very slim chance. The strong jobs report today can translate to better earnings after a period of time but it can't be immediate," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York.   Continued...

 
The Wall St. sign is seen outside the door to the New York Stock Exchange in New York's financial district February 4, 2014.   REUTERS/Brendan McDermid