Third Quarter Earnings Derby: The US of A Gets in the Act

Third quarter S&P 500 earnings results for the first three weeks of the season continue running far ahead of Street estimates. Importantly, however, recent weakness in some economic data has overshadowed the better-than-expected earnings and caused stock prices to fall sharply.

The pullback in stocks was largely erased today as third quarter US GDP showed growth of 3.5%, the first positive economic growth in four quarters and also beating Wall Street estimates by nearly 10%. Even with some oil stocks reporting disappointing earnings, stocks soared by nearly 200 points on the Dow Jones Industrial Average.

The beat-rate for S&P 500 companies' earnings for the third quarter is running at a rate that I have never seen before. With 60% of companies reporting, 84% have reported earnings higher than Wall Street estimates, and 60% have reported better-than-expected sales. Here's a short breakdown of the results thus far for the S&P 500 companies:

Earnings Reported through Thursday

Positive Surprises: 258
Negative Surprises: 45
% Positive Surprises: 84%

The beat ratio of 84% so far this quarter is far higher than we expected, and we were as optimistic as anyone that earnings would again be better than Street estimates.

Revenues for Reporting Companies

Positive Surprises: 183
Negative Surprises: 118
% Positive Surprises: 60%

The common thread among the good earnings reports continues to be cost control.

Early this week, the markets appeared to begin looking past the good news on earnings, as some economic reports showed that the economy continues to struggle with housing and employment headwinds. The good news on US GDP growth for the third quarter, however, appears, at least for the moment, to have assuaged investors' concerns that the recent gains in the economy might stall out.

I'll update next week.

Data courtesy of Bloomberg.

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