Third-Quarter Earnings Season Begins Next Week and May Deliver Very Good News for the Market
Key Points
Because share prices generally follow earnings (eventually), it's very good news for the stock market.
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After a mediocre September for the stock market, October may bring news that boosts share prices as the fourth quarter progresses. That's because third-quarter earnings season begins in earnest the week of Oct. 12, and expectations for S&P 500 (SNPINDEX: ^GSPC) companies, which represent about 80% of the total U.S. stock market capitalization, are very high.
According to FactSet, which tracks company earnings, the S&P 500 is expected to post year-over-year earnings growth of 29.5% for the third quarter, which would mark the third consecutive quarter of earnings growth above 25%.
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Not only is that an impressive pace of growth for corporate earnings, but that estimate has been rising. At the beginning of the third quarter, estimated earnings growth for the quarter was 26.7%, but upward revisions to analysts' earnings estimates have pushed it higher over the past three months.
And third-quarter earnings growth is expected to be broad-based. All 11 sectors of the S&P 500 are expected to post growth in the quarter, and five sectors -- energy, information technology, communications, materials, and industrials -- are projected to post double-digit growth.
Over the long run, stock prices follow earnings because corporate profits reveal a company's fundamental value. So, if S&P 500 third-quarter earnings perform as expected, it should be very good news for investors.
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Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.
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