Low expectations for earnings season

Corporate earnings season is kicking off. Corporate profits have been the engine behind the stock market's recent rally, but there's worry on Wall Street that earnings are losing momentum.

Jeremy Hobson: Wall Street will get its first chance to react this morning to Friday's disappointing jobs report from the Labor Department. The report said just 120,000 jobs were created last month -- far short of the 210,000 economists were expecting.

One big question is whether the weak number will convince the Federal Reserve that more stimulus is needed. And we may get some clues about that when chairman Ben Bernanke speaks in Atlanta this morning.

Another question is whether corporate earnings will show the same weakness as the employment report. And tomorrow, we'll get the first read on corporate profits for the latest quarter from the aluminum company Alcoa.

Here's our senior business correspondent Bob Moon.


Bob Moon: Compared to a year ago, analysts are estimating corporate profits have held virtually flat. So why was the S&P 500 index up 12 percent in first three months of the year?

Mike Mullaney: The market, obviously, was well ahead of itself.

Mike Mullaney, at Boston's Fiduciary Trust, thinks investors got overly-optimistic, even as rising energy prices and economic troubles overseas ate into profits.

Christine Short is senior manager at S&P Global Markets Intelligence. She says the double-digit profit growth seen last year was bound to be a tough act to follow.

Christine Short: We were up almost 20 percent. And that was on top of 56 percent growth in 2010.

Short hopes the gloomy outlook among analysts might actually create some "upside" surprises. But portfolio manager Mike Mullaney sees caution signs ahead.

Mullaney: The prospect of positive surprises, and positive earnings-per-share growth in general -- above expectations -- is waning at the very minimum.

Analysts say there could be a return to double-digit profit growth by the end of the year, if energy prices ease and there's a clear solution to Europe's debt crisis.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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