| NEW YORK
NEW YORK Oct 7 The roughly month-long corporate
earnings announcement season that kicks off on Wall Street next
week coincides with the final, most intense stretch of the U.S.
If a particularly strong or weak batch of earnings were to
tip the market in one direction, stocks could help determine
investors' mood heading into voting booths on Nov. 8.
Strategists in a recent Reuters poll mostly viewed a victory
by Democrat Hillary Clinton as more positive for stocks until
year end than a win by Republican Donald Trump, largely because
her positions are well known.
But the race is still close and two presidential debates
remain, including one late Sunday, Oct. 9.
A perceived win by Clinton in the first debate on Sept. 26
briefly boosted stocks, but did nothing to pull the benchmark
S&P 500 index from its sideways drift since early July.
It is now 1.6 percent below its historic high set in August.
Some analysts say uncertainty surrounding the election is adding
to investor caution.
Earnings could move the bar for stocks more than anything
else, especially because of their higher-than-average
"If there's something that can help the outlook for
earnings, then it's going to be good news for the stock market.
It is the most important variable," said Hugh Johnson, chief
investment officer of Hugh Johnson Advisors LLC in Albany, New
"What's needed is something that's going to make this look
The S&P 500's forward price-to-earnings ratio sits at 17,
above its long-term average of 15.
As earnings season kicks off next week, the hope among some
investors is that the period will mark an end to the year-long
U.S. profit recession.
While analysts expect third-quarter earnings will show a 0.7
percent decline from a year ago, that number is likely to move
to the plus side based on the typically high percentage of
companies that surpass analysts' profit expectations, Thomson
Reuters data shows.
From the start of an earnings season to the end, the S&P 500
earnings forecast has had a median gain of 3.4 percentage points
since 2002, the data shows.
If that's the case this time around, third-quarter S&P 500
earnings could end up with growth of about 2.7 percent, which
would be biggest increase since the last quarter of 2014.
The increase, however, may not be large enough to convince
some investors that stocks are ready for a late-year rally.
"I expect companies to beat expectations - they always do.
Any way you slice it, we're not going to see the growth that we
were hoping for last spring. It's not going to happen," said
Brad McMillan, chief investment officer for Commonwealth
Financial in Waltham, Massachusetts.
Revenue for the past quarter is expected to have increased
2.5 percent, which would be the first year-over-year sales
increase for S&P 500 companies since the end of 2014. It also is
likely to rise as companies beat expectations.
A lot could depend on energy results, which again are
expected to be the biggest drag on S&P 500 quarterly earnings.
U.S. oil prices averaged almost $45 a barrel during
the third quarter, not far from the average during the same
period in 2015. Prices have risen to nearly $50 recently and if
that level can be sustained it could boost forecasts from energy
companies, Johnson said.
The recent sharp decline in the British pound versus the
U.S. dollar underscored lingering concern over
Britain's late-June vote to exit the European Union. A wide
range of U.S. companies conceded in the last reporting period
they expect a hit but were unsure how deep it may be.
Among companies due to report next week are Alcoa as
well as several top banks: Citigroup, JPMorgan Chase
and recently battered Wells Fargo.
(Reporting by Caroline Valetkevitch; Editing by Daniel Bases
and James Dalgleish)