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Investors sure like the latest monthly payroll and unemployment numbers from the U.S. Labour Department, but are corporate earnings supporting the widespread enthusiasm for stocks?

On Thursday, the Dow and S&P 500 indexes surged to new highs after the U.S. economy generated 288,000 jobs in June, which is better than economists had been expecting and offers compelling evidence that the first quarter contraction in economic activity is giving way to better growth ahead.

The Dow Jones industrial average blasted above 17,000 for the first time ever. The broader S&P 500 rose nearly 11 points, to 1,985, putting it close to the 2,000 threshold. Major indexes in Europe also surged on Thursday.

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The pleasant payrolls surprise follows a number of similarly upbeat reports on the economy, after a 2.9 per cent contraction in economic activity in the first quarter raised the question of whether the recovery was sputtering.

The unemployment rate in June slid toward a six-year low of 6.1 per cent, down from 6.3 per cent in May.

Although the ISM non-manufacturing index, also released Thursday, retreated to 56 in June, down from 56.3 in May, economists liked the details within the report: New orders and employment rose, and construction activity was strong.

"This bodes well for the housing recovery, which has languished in recent quarters," said Paul Dales, senior U.S. economist at Capital Economics, in a note.

Still, a stronger economic backdrop goes only so far when the bull market in stocks is more than five years old and the S&P 500 has nearly tripled from its multiyear low in 2009.

A number of stock market strategists have argued that further gains are going to have to come from earnings growth. Unfortunately, few observers see anything more than ho-hum growth ahead.

John Butters, senior earnings analyst at FactSet Research Systems, pointed out that analysts currently estimate that earnings for companies within the S&P 500 will rise a modest 4.9 per cent in the second quarter.

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The second quarter earnings season unofficially starts on July 8, when Alcoa Inc. reports its results after markets close.

In the runup to the start of the reporting season, though, earnings estimates have been coming down. According to Mr. Butters, analysts had been expecting 6.8 per cent growth at the start of the second quarter, at the end of March. Materials, financials, telecommunications companies and consumer discretionary companies have received the biggest downward revisions.

Companies also have been revising their earnings expectations downward. Among the 111 companies that have issued guidance since the start of the second quarter, 76 per cent have been growing more pessimistic about their performance.

But this isn't especially grim news. In fact, analysts and companies tend to temper their enthusiasm as a quarter progresses, and the current revisions are far less severe than previous quarters.

"Although the growth rate for the second quarter has dropped since March 31, analysts cut earnings estimates for the quarter by the lowest amount since the second quarter of 2011," Mr. Butters said in a note.

As for 76 per cent of companies cutting their earnings estimates, the percentage of downward revisions was 84 per cent in the first quarter and 88 per cent in the fourth quarter of 2013, which suggests that things are actually improving.

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The problem is that they may not be improving at the same pace as the stock market. Mr. Butters noted that the S&P 500's price-to-earnings ratio, based on expected earnings over the next 12 months, is 15.7. That's above the five-year and 10-year averages, and implies that stocks are overvalued next to earnings.

Let's hope the economic news continues to get better.

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