Negative Earnings Growth? The Jury Is Still Out

New York Stock Exchange, lower Manhattan, New York City.
Photo: Oliver Quillia for CNBC.com
New York Stock Exchange, lower Manhattan, New York City.

Negative earnings growth for the third quarter? The jury is still out.

New York Stock Exchange, lower Manhattan, New York City.
Photo: Oliver Quillia for CNBC.com
New York Stock Exchange, lower Manhattan, New York City.

It's the Big Debate on the Street today: Are earnings at a trough or not? Exhibit 1 for bears: Earnings for the S&P 500 index are expected to be negative for the third quarter, and earnings growth expectations of 10 percent for the fourth quarter are coming down fast. Some expect earnings for 2013 to be lower than 2012.

Well, let's not get ahead of ourselves. It's true that earnings — right now — are slightly negative for the S&P 500, compared to the third quarter of 2011.

But so far, earnings for the 35 companies that have reported show a familiar trend: As a group, the earnings growth is running at 8.3 percent, according to Nick Raich at Key Bank.

Yes, it's early. But when the quarter is over, it's likely growth will be around 4 percent to 5 percent. That is not great — the slowest quarterly growth year-over-year in two years — but it is still growth.

What about fourth-quarter guidance? "While a majority of companies are lowering their (fourth quarter) 2012 outlooks after reporting, both the percent of companies reducing guidance and the magnitude of their reductions is easing compared to last quarter (and the quarter before that), " Raich says.


1) Got euro debt? Seems like it's a popular investment again.

Over the weekend, there was talk that European Union countries were discussing the feasibility of buying Greek debt to help out with their current debt-to-gross-domestic-product ratio. The Greeks, of course, can't get their debt down, so the idea being floated would be for the Greek government to buy debt using money lent from the European bailout fund (European Stability Mechanism). Since the debt is already trading at a steep discount, the argument goes, buying the debt would be a wise move.

At least, that's the theory. Greek 10-year debt is down again today, to 17.9 percent, but it has been declining since June, when the yield was over 30 percent.

In fact, we have been in the midst of a rally in peripheral European debt for several months. Shorting peripheral European debt has been disastrous.

Consider: the Spanish 10-year yield, at 5.6 percent, is near its lowest level since April of this year. The Italian 10-year debt is below 5 percent, near the lowest since March.

2) Better-than-expected September retail sales should help boost third-quarter GDP , according to Barclays. They upped their estimate to 2 percent from 1.8 percent.

3) Capital One Financial drops 2.2 percent pre-market after reporting delinquencies and charge-offs rose on a sequential basis in September. According to a U.S. Securities and Exchange Commission filing, Capital One's 30-day delinquency rate for U.S. credit cards edged up to 3.52 percent from 3.37 percent in August. Charge-offs, or loans the bank doesn't expect to collect, rose to 3.93 percent in September from 2.58 percent in August at the U.S. card business.

—By CNBC's Bob Pisani; Follow Him on Twitter @BobPisani

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