The third quarter was supposed to be when earnings growth returned to U. S. companies. Not anymore. Companies in the S&P 500 are now expected to report an earnings decline for the sixth consecutive quarter in the coming weeks, according to analysts polled by FactSet. That slump would be the longest since FactSet began tracking the data in 2008.
The prolonged contraction has raised questions about how far stocks can rise without corresponding strengthening in corporate earnings.
As recently as three months ago, analysts estimated U. S. corporate earnings growth would return to positive territory by the third quarter. As of Friday, they were predicting a 2.3% contraction from the year-earlier period.
Many of the factors pressuring U. S. corporate earnings in recent quarters – including a stronger dollar and falling oil prices – have abated in 2016. The WSJ Dollar Index, which measures the U. S. dollar against a basket of 16 currencies, is down 4% this year, versus up 8.6% for all of last year, and the price of U. S.-traded crude oil has risen 20% in 2016, rebounding from its extreme lows.
Still, those moves haven’t been enough to project an end to the earnings recession.
This post was published at David Stockmans Contra Corner By CORRIE DRIEBUSCH, Wall Street Journal ‘ September 26, 2016.