That may continue, supporting the buoyancy in the stock market, according to State Street, the the world's fourth largest asset manager. The benchmark S&P 500 index of US shares has advanced almost 3% in July, taking its year-to-date gains to 19%.
Michael W. Arone, chief investment strategist at State Street, lists five reasons why US corporate earnings may continue to beat estimates:"Earnings for energy and materials are forecasted to contract YoY by 45% and 28%. If you exclude these two sectors that make up just 6.5% of the S&P 500, the index would be expected to grow earnings by about 1.5%," Arone wrote in a recent research note.
"Companies are beating, and they will continue to beat," he wrote."And, based on history, they're likely to beat in the 4 to 5% range in aggregate on average, possibly more." Technology names are expected to outdo the market after"five quarters of weak EPS growth," ac ccording to the strategist. Given the sheer size of this sector in market-cap terms – with a handful of mega-cap stocks currently driving S&P 500's returns – such outperformance"could be a major tailwind" for the market, Arone said. "Earnings growth is expected in the third and fourth quarters. If the forecasts are correct, Q2's earnings season will mark the bottom of this cycle — and from here on out, earnings could grow," Arone said.