A stock trader works at the New York Stock Exchange, Feb. 11 in New York.Mark Lennihan/The Associated Press
For all the fretting about the recession in U.S. corporate profits, second-quarter results are providing at least one reason for optimism, according to Credit Suisse Group AG. It's the number of companies raising forecasts for coming quarters, a ratio that has jumped toward a 12-year high.
Nearly 90 per cent of companies in the S&P 500 Index that have changed previously disclosed expectations for future earnings have raised the target, among those that reported results between June 1 and July 21, according to data compiled by the bank. That's the highest since 2010 and near the upper end of a range dating back to December 2003, analysts led by Chief U.S. Equity Strategist Lori Calvasina wrote in a report on July 22.
Any letup in the drumbeat of bad news about earnings would be welcomed by investors, who have clung to stocks even as a streak of quarterly declines in profits stretched to the longest since the financial crisis. Analysts predict profits in the benchmark contracted by 4.5 per cent in the second quarter, for a fifth straight retreat.
"Guidance trends have gotten off to a solid start for mid- and large-caps, but have been weaker for small caps," the Credit Suisse analysts wrote. More than 70 per cent of mid-cap companies raised guidance, while about 60 per cent of small-caps did, they found.
Second-quarter earnings fell 1 per cent among the 130 companies in the S&P 500 Index that have issued thus far, Bloomberg data show.
While quarterly results have been better than the "fairly depressed expectations," concern about the macroeconomic backdrop lingers, analysts led by Julian Emanuel, executive director of U.S. equity and derivatives strategy at UBS Securities LLC in New York, wrote in a report Monday.
"Investors will look for commentary suggesting limited impact from global political uncertainty and signs of improved growth," they said. "Positive guidance is likely to be rewarded."
That's already happened, according to research conducted by Bank of America Corp. Shares of companies that have raised their full-year 2016 earnings guidance have outpaced their counterparts that lowered expectations by nearly 2 percentage points in the following five days of trading, analysts led by Chief Equity Strategist Savita Subramanian wrote in a report Monday.
But the Bank of America analysts found that fewer companies have provided such guidance -- just 49 so far in July, compared with an average of 190 for this month historically, the analysts found.
"In general, companies seem to be holding back on issuing earnings guidance overall," they wrote.