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Earnings comes into focus as analysts boost S&P 500 forecast

TradingPub Admin | July 8, 2013

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If you want some free stock trading education that involves the key factors that impact the price of these equities, the fact that many market analysts predicted rising stock prices at a time of falling earnings forecasts could provide a helpful lesson.

Growing confidence
The Wall Street Journal reports that the confidence of global market participants that the Federal Reserve will lower its existing program of bond purchases has increased after the U.S. Department of Labor released robust jobs data during the first week in July.

At the same time, these global investors are becoming more involved in the asset markets, according to Bloomberg.

"If we were to say people were dipping their toe in the water on the economy a few years ago, now they are mid-thigh," Joe Kinahan, chief derivatives strategist at TD Ameritrade Holding Corp., told the news source during a July 5 phone interview.

Earnings season
Since the earnings season was scheduled to begin during the second Monday in July, and this period would involve a wide range of major companies providing their financial figures, global market participants will have some more crucial information that could either undermine or bolster their existing sentiment, according to The Wall Street Journal.

The first major company to provide this information will be aluminum maker Alcoa Inc., and several other large firms will have released their financial results by the time the month is over, the media outlet reports.

Data provided by analysts indicates that the earnings of the companies contained in the S&P 500 Index increased 1.8 percent during the second fiscal quarter, according to data compiled by Bloomberg. Six months ago, market experts forecast that these financial metrics would rise at a rate of 8.7 percent during the period.

Additional data provided by the media outlet indicates that this decline in earnings growth has been continuing for some time, since during the last five fiscal quarters, this key indicator of corporate health rose at a rate of 4.3 percent on average. This comes after these profits surged at a rate of 28 percent in 2011 and 2010.

"You will need a strong acceleration of earnings in the third and fourth quarters for the full-year estimates to come through," Robert Royle, a manager at the North American Trust fund of Smith & Williamson Investment Management LLP, told the news source. "You'll have multiple expansion in an economy that's not really growing fast enough."

While this change might seem like a rather substantial reduction, analyst predictions compiled by research firm FactSet indicate that in the second quarter, S&P 500-listed firms will report that their earnings rose only 0.7 percent from the same time in 2012, The Wall Street Journal reports.

"You could have basically two quarters in a row of lackluster revenue and weak earnings growth. That's bad," Dan Greenhaus, chief global strategist at New York-based trading firm BTIG, told the news source.

Bullish stock forecasts
Even though the figures for earnings do not look particularly appealing, the analysts predictions compiled by Bloomberg indicate a belief that the S&P 500 Index will continue to rise in value.

In the event that their forecasts are accurate, this group of stocks will surge by 8.9 percent to reach a new all-time high of 1,777.91, the media outlet reports. These optimistic predictions indicate confidence that the economic recovery has gathered enough steam to function without the help of quantitative easing, bulls have stated.

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