Earnings Season Is Starting. What to Expect.

Companies are in a position to report higher earnings than expected for the third quarter. That doesn’t mean their stocks are going to soar.

That won’t help third quarter earnings-per-share results, which are expected to drop about 0.3%. Profits are growing slower than revenues because margins are narrowing as the cost of labor rises faster than sales. The few earnings reports that have trickled in so far have been better than expected. Eighteen out of 21 companies have beaten EPS estimates, according to Wells Fargo.

That is expensive, given the fact that bond yields have gained this year, making fixed income more attractive. Earnings would have to beat expectations by a particularly wide margin to move stock prices substantially higher.

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