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.
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