Equity analysts for Standard & Poor's on Wednesday presented a third-quarter earnings outlook that took note of a vast gap between their expectations for record double-digit earnings versus investors' loss of faith in analysts' optimistic earnings forecasts.
While S&P 500 corporations are expected to report healthy aggregate third-quarter earnings per share, for the eighth consecutive quarter of double-digit earnings growth, the theme for Q3 will be earnings in "an unprecedented high-risk environment," said Robert Keiser, vice president with S&P Capital IQ Valuation and Risk Strategies Research, during an earnings outlook webinar.
The U.S. economy is not yet in recession, Keiser said, "but we're getting a lot of mixed signals. Investors will often take the view that 'this time things are different,' but you have to admit that since 2008, many things about the economy are truly quite different. The performance of S&P 500 companies will tell us in aggregate whether the economy is entrenched in a recession."
Sovereign credit contagion in Europe is feeding investors' fear of a global run on banks, which government leaders must short circuit—both at home and abroad, said Keiser, who pointed to S&P's downgrade this summer of U.S. debt. "So long as Europe's debt problems are unresolved, this uncertainty is not going to go away."
Keiser's other concerns for the U.S. economy include a lack of job creation, a weak housing market and a massive dilution of the money supply due to the Federal Reserve's two rounds of quantitative easing.
That said, the analysts on the webinar pointed to S&P Capital IQ's expectations for yet another banner quarter for U.S. stocks, thanks in part to surprisingly strong consumer retail sales, which have grown every month in 2011 except for May.
"We want to keep an eye on how the consumer contributes to GDP going forward," Keiser said, adding that his economic outlook calls for 1.5% to 2% annual growth in gross domestic product. "We believe the market is fundamentally cheap right now," he said.
Equity analyst Christine Short said earnings results have been a positive this year for the economy, but noted that S&P Capital IQ's expectations on Tuesday of 13.47% average Q3 growth dropped to 13.02% overnight.
