Investors could see U.S. profit slide continue into third quarter

Fri Aug 5, 2016 5:00pm EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - The U.S. profit recession may go on, dashing hopes of investors and business people who had been banking on a turnaround in the third quarter for companies that had been watching their profits shrink for the last year.

Analysts have been cutting forecasts for third-quarter S&P 500 companies so much in recent weeks that the period now is on track for a year-over-year decline rather than a slight gain, Thomson Reuters data shows.

The quarter's earnings are expected to fall 0.1 percent from a year ago, down from the rosy 2.0 percent growth projection made at the start of July. If results confirm those expectations, the United States would extend its profit recession for a fifth straight quarter.

That would increase concerns for investors who had been hoping that a profit rebound in the second half of the year would help justify pricey market valuations following the recent run to record highs.

Earnings for the second-quarter reporting period, which is nearly over, remain on track to fall 2.6 percent year-over-year.

Analysts' third-quarter estimates for every sector except technology have been deteriorating in recent months on worries about slower global growth and strength in the U.S. dollar, though profit growth is still expected in materials, health care and other sectors, as well as technology.

Expectations for the energy sector have been cut the most, and the sector continues to be the biggest negative influence on overall S&P 500 earnings.

In recent weeks, "you saw a lot of the big oil companies post horrific results, but mostly on the writedown of assets," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 28, 2016.  REUTERS/Brendan McDermid