Tags: corporate | earnings

Corporate Earnings: Weakness Puts Stocks at Risk

By    |   Wednesday, 08 Jul 2009 08:35 AM

The earnings slump for major U.S. companies likely will continue through this quarter, making it difficult for stocks to extend their recent rally.

Profits for member companies of the Standard & Poor’s 500 Index are estimated to drop 21 percent in the third quarter from a year earlier, according to data from S&P and Bloomberg.

While that would represent improvement from a projected 34 percent profit plunge for the second quarter, it’s not exactly a figure to write home about.

The credit crisis and recession have combined to weigh on profits. The most recent U.S. employment report showed a job loss of 467,000 for June, and the unemployment rate hit a 26-year high of 9.5 percent.

“So long as unemployment keeps rising, the consumer will continue to be very conservative,” Walter Hellwig, a money manager at Morgan Asset Management in Birmingham, Ala., told Bloomberg.

“Any improvement will come from cost cutting, and that’s not sustainable,’’ Hellwig said.

“If you have no anticipation of top-line growth, it will be a little tougher to generate that enthusiasm into the fourth quarter.”

That’s not good news for stocks. “There has to be some profit-taking,” David Costa, dean of Swiss business school Robert Kennedy College, told CNBC.

“I’m afraid there might be another (earnings) shock,” Costa said.

“I’m afraid we’re not going to have the results that the market expects. It’s really important to be cautious because we had a very strong (stock) rally, and it doesn’t mean it’s sustainable to the end of the year.”

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The earnings slump for major U.S. companies likely will continue through this quarter, making it difficult for stocks to extend their recent rally.Profits for member companies of the Standard & Poor’s 500 Index are estimated to drop 21 percent in the third quarter from a...
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2009-35-08
Wednesday, 08 Jul 2009 08:35 AM
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