The Improving Environment for Earnings

The earnings news is improving dramatically. The S&P 500 has posted declining earnings for the last nine straight quarters. Just one month ago, Wall Street’s third-quarter earnings estimate for the S&P 500 was -8.5%, but the latest estimate is now only -2%.

Since the analyst community is typically very cautious, I expect that the S&P 500 will post a slight earnings gain. Another reason why I expect positive earnings is that the U.S. dollar has decayed by 15% to 30% since March. This is important because the S&P 500 is dominated by many multinational companies that have substantial foreign operations. A weaker dollar helps them because they get paid in currencies that are appreciating against the dollar.

If the third-quarter earnings don’t get you excited, I guarantee you that the fourth-quarter earnings will get everyone excited. According to the analyst community, Q4 earnings are now expected to be up over 270% for the S&P 500, which is up form their previous estimate of 205% just one month ago.

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