Positive curve in earnings growth

It’s still early, but ‘ beats’ move things in the right direction

Corporate earnings growth is again flashing green after four quarters of drowning in red.

Profit reports that toppedWall Street forecasts at the start of the third- quarter reporting season have nudged the Standard & Poor’s 500 stock index’s earnings growth rate into positive territory, raising hopes that the earnings recession that began in the second half of 2015 is coming to an end.

Because of earnings “beats” this week from financial titan Goldman Sachs, health care giant Johnson & Johnson and video streaming service Netflix, the earnings growth rate for the S& P 500 on Tuesday swung from negative to positive, edging higher to + 0.2%, up from a projected contraction of - 0.5% on Oct. 1, according to Thomson Reuters.

After four straight quarters in which the S& P 500 posted earnings that were smaller than the same period a year earlier, earnings may finally be moving in the right direction powered by banks and tech companies.

“The third quarter is shaping up to be a key inflection point and ultimately a positive catalyst for

stocks,” Tom Lee, managing partner at Fundstrat Global Advisors, noted.

Dubravko Lakos- Bujas, U. S. equity strategist at JPMorgan, said in a report that he expects S& P 500 earnings to top analyst profit forecasts by 3 or 4 percentage points, which would equate to low, single- digit profit growth for the just- ended third quarter.

Driving the earnings rebound, LakosBujas says, is improving economic growth in the U. S. and overseas, rising commodity prices and a stabilization in the U. S. dollar, as a weaker dollar makes American products cheaper overseas and helps boost sales and profits.

While the good news is the profit recession could be nearing an end, the bad news is that future profits might not be as strong as expected, says Bruce Bittles, chief investment strategist at Baird.

“I doubt earnings growth will be robust going forward,” he says, citing falling productivity, a still slow- growth economy and rising wages.

Much of the negativity is because of depressed earnings in the oil patch, which has clouded a solid profit picture.

If you strip out the energy sector, the S& P 500 has suffered only one quarter of negative earnings ( the first quarter of