By Profit Confidential<\/p>\n
We\u2019re halfway through the second quarter\u2019s earnings reporting season and, as I expected, it\u2019s not turning out to be as good as what optimistic advisors were expecting. Corporate earnings<\/a> for the S&P 500 companies are anemic, and their prospects of growth in the current quarter have already started to diminish.<\/p>\n Sure, it\u2019s common these days to hear S&P 500 companies are beating corporate earnings<\/a> expectations. In fact, as of July 26, 263 of the S&P 500 companies had issued their quarterly corporate earnings, and 73% of them beat expectations. (Source: FactSet, July 26, 2013.)<\/p>\n Sounds great\u2014until we take a closer look.<\/p>\n Companies beating expectations aren\u2019t what they appear to be. What they are \u201cbeating\u201d are analyst expectations that have already been lowered. As a matter of fact, the corporate earnings \u201csurprise\u201d factor (the percentage of companies reporting well above expectations) is only 3.2% so far\u2014far below the average for the last four years.<\/p>\n As for the revenues of the S&P 500 companies, we have seen a growing trend of companies reporting revenues well below expectations. For the second quarter, so far, only half of the S&P 500 companies that have rang in their corporate earnings registered revenues that were above expectations.<\/p>\n And we have the S&P 500 companies issuing warnings about their corporate earnings for the current quarter.<\/p>\n So far, 43 of the big S&P 500 companies have issued negative warnings about their third-quarter corporate earnings, while only 11% provided positive guidance.<\/p>\n Add in the stock buyback stories I have been writing about in these pages, and corporate earnings for the second quarter are far from impressive. Looking at future earnings guidance keeps me pessimistic about the corporate earnings growth rate going forward.<\/p>\n How long can the stock market continue rising if corporations are struggling for income and revenue growth? The markets can stay irrational for a long period of time, and they will continue to rise irrationally until: 1) the Fed reduces the amount of new money it creates each month; or 2) consumers pull back on spending as the economy erodes. We are likely to see the latter scenario before the first, as consumer spending<\/a> is getting softer with each passing day.<\/p>\n The U.S. economy is in a \u201cno-growth\u201d stage. It\u2019s growing at a rate of only 1.7% per year, according to a report yesterday from the U.S. Department of Commerce (a figure I expect to be revised downward in the weeks ahead).<\/p>\n With the Commerce Department\u2019s gross domestic product (GDP<\/a>) numbers yesterday, we discover consumer spending has dropped 22% from the first quarter of 2013 to the second quarter of 2013. How can corporate earnings rise in such an environment? They can\u2019t, and that\u2019s why the stock market\u2019s advance (minus the Fed\u2019s $85.0-billion-a-month printing program) is a farce.<\/p>\n