Double-digit profit growth may return in second quarter

Fri Jul 4, 2014 7:05pm 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 climbing further into record territory.

Many factors point to a second-quarter earnings season poised to surprise substantially to the upside. There is 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. [ID:nLNS3IEAIF]

"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 June's jobs data.

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, when the growth rate was 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 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.

In the coming week, aluminum producer Alcoa Inc (AA.N: Quote) will get the earnings season started on Tuesday with second-quarter results after the closing bell. Family Dollar Stores, Inc FDO.N will report quarterly results on Thursday before the market opens. On Friday, earnings will be released by Fastenal Co (FAST.O: Quote), a parts and tools supplier to the construction and manufacturing industries, and Wells Fargo & Co (WFC.N: Quote), the largest U.S. mortgage lender.   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