And in other news--this is week two of third quarter earnings season

10/14/2013 3:08 pm EST


Jim Jubak

Founder and Editor,

We’re in week two of third quarter earnings season—although you’d never know it with the way that the mess in Washington has dominated headlines and markets.

Even before the government shutdown and the battle over the debt ceiling, this quarter was shaping up as especially challenging.

First, we went into the quarter with Wall Street analysts expecting only very modest growth in third quarter earnings. At the end of the second quarter three months ago, analysts were expecting third quarter earnings to advance 7% year over year. Expectations right now are for just 1% year over year growth. That would be a significant drop from the 2.4% year over year growth recorded in the last quarter.

Second, the problem is expected to be on the top line where analysts are expecting just 2% year over year sales growth. That’s down from the 3% growth expected three months ago. And it would be essentially flat with the 1.7% year over year growth in the second quarter.

Third, analysts are expecting a meaningful rotation in leadership away from financials toward consumer discretionary stocks.

In the second quarter financials led the way on earnings with 28% year over year growth. This quarter Wall Street is looking for a 3% drop in earnings from this sector

Leadership this quarter is projected to come from the consumer discretionary sector with 6.5% year over year earnings growth.

Last quarter investors saw analysts cut earnings estimates to levels so low that companies managed to report earnings beats with very little trouble despite very modest earnings growth.

Given the low expectations for this quarter, it’s reasonable to expect the same story this quarter—which could provide fuel for a fourth quarter rally

And speaking of the fourth quarter Wall Street is projecting fourth quarter year over year earnings growth of 10% on what would be, for me, shockingly low sales growth of just 0.8%.


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