Companies might be raking in another quarter of record earnings, but some investors are already bracing for when the profit bonanza will end.
It's halfway through the third-quarter earnings season, with 319 of the Standard & Poor's 500 companieshaving reported, and by most accounts it's been a whopper. Earnings are coming in 16.1 percent higher in the quarter than they were a year ago, marking the seventh-consecutive quarter of double-digit earnings growth, S&P Capital IQ says.
Yet, rather than rejoicing the profit windfall, analysts and companies are predicting less ebullient times ahead. Caution about future earnings comes amid a powerful rally on Wall Street, which has pushed the S&P 500 index up 16.9 percent from its low this year on Oct. 3. "It's interesting to see the market go up so much, but the future estimates for profit have been coming down," says John Butters of FactSet Research.
Now that concern over an imminent financial crisis in Europe is fading, deciphering clues from third-quarter earnings season will return to the forefront as investors refocus on the prospects of U.S. companies. Investors are paying close attention to how:
Sharply cut forecasts have helped reduce disappointments. Analysts cut their forecast for third-quarter growth from 16.4 percent at the quarter's start to 11.5 percent once reporting began, Butters says. "Low expectations are surmounted," says Doug Sandler of Riverfront Investment Group.
The greater frequency of warnings, though, might simply be a way for companies to make it easier for them to top estimates later, Sandler says. "It's just setting the bar low," he says. "We're not actually seeing a reason for concern."
This story first appeared in USA Today.