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US pins hopes on earnings

A long hoped for improvement in the economy appears to be manifesting itself in second-quarter US earnings, but the next two weeks could be the real test.

Companies such as General Electric Co and Intel Corp have reported solid results. In addition, GE believes now is a ripe moment to spin off its private label credit card division in the hopes growing consumer demand will make it more attractive.

Intel declared that personal computer sales have stabilised, while it forecast third-quarter revenue above Wall Street’s expectations.

Profit growth for the second quarter is now estimated at 6.7 per cent — excluding results from Citigroup Inc, which was hit by a big adjustment from a mortgage settlement — better than where they stood at the end of June.

In addition, 68 per cent of S&P 500 companies so far are beating analysts’ profit expectations, above the 63 per cent long-term average, according to Thomson Reuters data. A similarly high per centage of companies are beating revenue forecasts.

“Analysts may be underestimating the level of prospective improvement in the second quarter,” wrote Carmine Grigoli, chief investment strategist at Mizuho Securities in New York. The latest profit estimate is up from a July 1 forecast of 6.2 per cent, while revenue growth, now 3.2 per cent, is on track to be the highest since the third quarter.

Among the companies set to release figures are Apple Inc, McDonald’s Corp, Coca-Cola Co and Caterpillar Inc. So far in July, six of 10 S&P sectors — particularly healthcare, consumer staples and energy — have shown upward revisions from June, according to Citigroup.

“The second quarter is going to be much stronger than the first for the reasons we all know, the weather. Investors are trying to decipher whether this improvement is a weather-related bounce or if there’s actually internal growth happening,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. -Reuters