Stocks: From "Worry Season" to "Earnings Season"

Posted by: Ben Steverman on July 12, 2010

Alcoa (AA) kicks off second quarter earnings season today, and Bank of America Merrill Lynch (BAC) chief U.S. equity strategist David Bianco says we’re moving from “worry season” to “earnings season.”

Bianco writes, in a July 9 research note:

We expect Tech and Industrials to lead positive EPS surprises as corporate spending and industrial [manufacturing] accelerated in Q2. Financials profits should improve from declining bank credit costs despite lower [investment banking] trading volumes and mixed [mergers-and-acquisitions] activity. Energy is the biggest 2Q EPS wild card. While better refining margins and natural gas prices in the quarter are positive to Energy, the oil spill impact is uncertain to the Energy Services companies. Net, we expect Q2 to be a good quarter showing sequential growth in both sales and [earnings per share].

According to Bloomberg’s survey of analysts, earnings for the Standard & Poor’s 500 index are expected to rise 33.2% over the second quarter of last year. The strongest profit growth — 119.8% — is expected to come from the small Materials sector, which includes chemical makers like Du Pont (DD) and Dow Chemical (DOW), and steel makers like U.S. Steel (X). The telecommunications sector, dominated by AT&T (T) and Verizon (VZ), is expected to turn in the weakest performance, with earnings down an estimated 5.6%.

On the top line, analysts expect S&P 500 sales to rise 9.45%, with energy leading the way (up 29.73%) and financials trailing (with revenue down 3.5%).

Even if companies do turn in solid profits, equity investors’ problems are hardly solved. Another BofA Merrill Lynch market expert — technical research analyst Mary Ann Bartels — foresees a summer rally for the S&P 500. But, she adds in a July 12 note, “we still maintain lower lows could be reached in the fall.”

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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