Investors Are Betting Corporate Earnings Have Turned a Corner

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Third-quarter earnings results that top forecasts could fuel a further leg up for a stock market that has advanced more than 50% from its March lows

Profits among companies in the S&P 500 are still expected to decline sharply from last year, but analysts have been lifting their estimates over the course of the quarter—a move that goes against the norm. Typically, earnings expectations decline as a quarter progresses.

With the economy continuing to slowly reopen, profits of the large U.S. companies in the flagship stock index are now projected to drop 20% from a year earlier in the third quarter. That is an improvement from the 25% decline anticipated at the end of June and the 32% drop reported for the second quarter.

Money managers will see how those expectations match up with reality as earnings season kicks off in earnest this week. JPMorgan Chase & Co. is set to report Tuesday, followed by Bank of America Corp. and Wells Fargo & Co. Wednesday. Results from other bellwethers including Johnson & Johnson , Delta Air Lines Inc. and UnitedHealth Group Inc. are also on tap.

“The actual numbers when they’re reported are going to be much more crucial for the market to interpret, to get a sense really how well this patient is healing,” said Frank Panayotou, managing director and private wealth adviser at UBS.

 

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