U.S. companies brighten their earnings outlook

Mon May 9, 2016 6:25pm EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - The profit recession that has weighed on large-cap stocks on Wall Street for the past three quarters may be loosening its grip as U.S. companies allow a hint of blue sky to poke through the gloom.

As companies share their expectations for coming months, the proportion of raised forecasts to those that are lowered is the healthiest it has been since 2011, according to Thomson Reuters data.

Technology and healthcare sectors are leading the way with forecasts that are even rosier than those of most analysts, including from Adobe (ADBE.O: Quote) Stryker (SYK.N: Quote) and Baxter International (BAX.N: Quote). But they are not alone.

Moreover, some companies like Pfizer (PFE.N: Quote), which last week raised its full-year forecasts, are citing a benefit from the dollar. When it was rising, the dollar had been among the biggest profit drags for U.S. multinationals in recent quarters.

There have been some big negatives, however, most notably Apple Inc (AAPL.O: Quote), whose weaker-than-expected sales forecast was particularly worrying because of its potential impact on the market. Apple is the largest component of the S&P 500.

But overall, companies are bolstering analysts' view that the first quarter, on track for a 5.5 percent decline in S&P 500 earnings, will prove to be the bottom of the current earnings recession.

"We think people are too bearish on earnings, and we're much closer to the end of the profit recession than to the beginning," said Richard Bernstein, chief executive and chief investment officer of Richard Bernstein Advisors in New York.

"It doesn't mean profits are going to be booming ... but it's better than it was, and why you're seeing some of the rotation into more cyclical stocks now."   Continued...

Adobe company logos are seen in this picture illustration taken in Vienna July 9, 2013. Picture taken July 9, 2013.  REUTERS/Leonhard Foeger