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Third-Quarter S&P 500 Earnings Are A Potential Springboard To Sustained Double-Digit Corporate Earnings Growth

This week will draw investors’ attention to the third quarter corporate earnings season, and Global Markets Intelligence Research looks forward to the possibility of the first back-to-back quarters of double-digit earnings growth seen since the third quarter of 2011

While analysts’ expectations currently forecast that earnings will grow by 6.6% in the third quarter according to the S&P Capital IQ consensus, we suspect that earnings growth could actually reach 10%, or higher, based on analysts’ collective tendency to understate final reported earnings.

The Materials, Telecom and Healthcare sectors are expected to report the strongest earnings growth, 14.0%, 11.8%, and 11.4%, respectively, while earnings growth of 2.9 percent from the Consumer Staples sector is expected to be the laggard.

The prospect of back-to-back 10%-plus quarterly earnings growth also foreshadows what are forecast to be at least an additional five quarters of double-digit S&P 500 profit growth, extending at least through calendar year 2015, according to S&P Capital IQ consensus data.

Now that we are potentially on the threshold of sustaining double-digit earnings growth, going forward, the performance of the economy will be benchmarked against these very bullish investor expectations, which happen to be occurring at a time when the Federal Reserve is also expected to begin normalizing monetary policy at mid-year 2015.

At face value, a simultaneous acceleration of corporate profits, and tightening of Federal Reserve monetary policy, can only occur against a backdrop of a very fundamentally sound U.S. economy, in our view.

Click here to read the most recent Lookout Report from Global Markets Intellgience

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