A strong start to second-quarter earnings season isn't doing very much for future expectations, which in turn could put a drag on where the stock market is headed.
S&P 500 companies are off to a glittering start, with 87 percent reporting better-than-expected profits as compared with the same period in 2017, according to FactSet. Though it's still a relatively small sample — 17 percent of the index — the early results are encouraging.
What is somewhat concerning, though, is that the strong second quarter is not inspiring hopes for a more powerful third quarter.
Expectations for the July-to-September period have changed little even as earnings momentum otherwise has grown. Analysts surveyed by FactSet still expect the quarter to grow 21.5 percent, a notch below the 21.6 percent estimate as of June 30. Revenue growth also has come down a bit, to 7.5 percent from the 7.6 percent projected at the end of June.
"This is not what we expected to see, given the magnitude of the beats so far for Q2," Nick Colas, co-founder of DataTrek Research, said in the firm's market note Monday. "Our explanation (for now) it that the revisions will come as more companies report and analysts assimilate all that data into future earnings expectations."
Sure, 21.5 percent would still be among the best the index has seen this decade.
But the lack of more upward enthusiasm is feeding a popular narrative in the market this year, namely that U.S. companies are reaching peak earnings and may not have much left in the tank.