A long hoped for improvement in the economy appears to be manifesting itself in second-quarter U.S. earnings. As massive companies like Microsoft, McDonald's, Visa and Caterpillar unveil their second-quarter earnings results this week, investors will be looking for further signs that the economy sped up in the second quarter, and is poised to accelerate into the end of the year.
One analyst reported that "The earnings picture looks pretty good. As long as earnings keep coming out good, and it's a controlled rally, I think you can remain positive on the market."
Companies such as General Electric Co and Intel Corp have reported solid results. In addition, GE believes that now is a good time to spin off its private label credit card division in the hopes that growing consumer demand will make it more attractive. Intel declared that personal computer sales have stabilized, while it forecast third-quarter revenue above Wall Street's expectations.
Profit growth for the second quarter is now estimated at 6.7 percent - excluding results from Citigroup Inc which was hit by a big adjustment from a mortgage settlement.
In addition, according to Thomson Reuters data, 68 percent of S&P 500 companies so far are beating analysts' profit expectations, above the 63 percent long-term average and up from a July 1 monthly forecast of 6.2 percent. A similarly high percentage of companies are beating revenue forecasts, now at 3.2 percent, and on track to be the highest since the third quarter.
While some have suggested that 2Q will see a bounce-back from weather-related issues earlier in the year, analysts believe that certain sustainable trends are driving these advances. Recent jobs and other economic data suggest the economy was already growing briskly heading into the second half and June's payrolls report show the surge in job growth and the jobless rate closing in on a six-year low.
GE's quarterly report on Friday showed the profit margin for its industrial businesses, a closely watched barometer by Wall Street, expanded 0.2 percentage point to 15.5 percent.
An additional promising sign for the second quarter: typically pessimistic analysts' forecasts, which most S&P 500 companies still tend to beat, declined just 2.2 percentage points between April 1 and July 1, the smallest overall decline since the first quarter of 2011 and about half the average decline seen in the last five years.