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BEHIND THE MONEY: Best Market Quarter in Decade Among Worst Ever for Earnings
If the stock market is in fact the best predictive mechanism we have available, then get ready for one heckuva a recovery over the next six months.
The S&P 500 gained 15% in the second quarter, its best performance since the fourth quarter of 1998. Meanwhile, earnings for members of the index plummeted on average by 35 percent during the period, according to analyst data compiled by Thomson Reuters.
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What makes it one of the worst earnings periods ever is its breadth. All 10 of the sectors in the S&P 500 will post negative growth, according to analysts. That hasn't happened since Thomson Reuters began tracking the data in 1998.
If you're curious, the biggest earnings losers will be raw materials [XLB
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], energy [XLE
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] and financials [XLF
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]. Those happen to be some of the best performing sectors in the market last quarter.
So what's got the market all excited? Well look at the expected growth further out. Analysts are expecting fourth quarter earnings to nearly triple (181 percent) from 2008's abysmal fourth quarter, according to Reuters. That's a hockey stick pattern that many market followers get wary about.
Earnings reporting season will kick off with Alcoa [AA
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] next week and really start to ramp up the following week. Throw out the second-quarter numbers. Clearly, given the recent market performance, investors don't care about those. Instead, traders will be zoning in on those full-year forecasts.
If they don't see that hockey stick pattern forming for the fourth quarter, they will put their buying on ice.
John Melloy is the Senior Editorial Producer for Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.______________________________________________________
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