Ask Matt: How bad will corporate profits be?
Q: How bad will corporate profits be?
A: Soaring corporate profits have kept the bull market roaring. But that profit fuel appears to be running out.
Third-quarter earnings season kicks off this week when Alcoa reports its earnings on Thursday. Analysts are calling for Standard & Poor's 500 companies' profit to fall 4.8% during the quarter, says S&P Capital IQ. That would be the first quarter-over-quarter profit decline since the third quarter of 2009.
Energy companies continue to decimate corporate profits. Companies in the energy sector are expected to post 66% lower profit during the quarter. That's due to a 50% drop in average oil prices from this time last year.
Analysts have been getting increasingly worried about the third quarter for months. Back on July 1, analyst thought companies' profit would only shrink 0.9%.
The biggest wildcard, too, is whether analysts have gotten overly cautious. Companies have beaten earnings growth estimates by between 4.0 and 4.5 percentage points over the past five years.
But even if companies beat earnings growth forecasts by the same historical amount - profit will still be lower. It's not all doom and gloom, though. If you take out the energy sector, corporate profits are all that bad - seen growing 3.4%.
Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.