Third quarter earnings season kicks off
Last week, we received one indicator of the health of the U.S. economy, with unemployment for September falling to 7.8%, the lowest the rate's been since January 2009.
This week, we'll get another look at how the economic recovery is coming along when the corporate third-quarter earnings season kicks off tomorrow.
Companies scheduled to release financial results this week include Alcoa, Yum! Brands, JPMorgan Chase and Wells Fargo.
Though the domestic economy is still weak, U.S. corporations have enjoyed healthy profits in the aftermath of the 2008 financial crisis, thanks to relentless cost cutting and the strength of emerging markets.
However, the corporate bull run looks set to end, with Wall Street analysts predicting that profits for companies in the S&P 500 in the three months ended in September will shrink 2.6% compared to the same quarter a year ago. This would mark the first quarterly contraction since late 2009.
"Half of the sectors are expecting negative growth from a year ago and nine out of 10 sectors have experienced a decline in estimates for this upcoming reporting quarter," reported Citigroup in a research note.
For the third quarter, analysts expect the energy and materials sector, which are the most exposed to economic weakness in China and Europe, to decline 19% each. Consumer discretionary and industrials are projected to both grow 5%, while financial companies are expected to see the biggest gains, up some 8%.
Though the forecast is gloomy, there is a sliver of hope. Corporations typically prefer to under-promise and over-deliver, so keep your fingers crossed that actual fiscal results for the quarter will surpass expectations.