Investors stay patient amid profit lag, so far

Investors aren’t typically known for their patience. That’s why Wall Street’s willingness to wait around for corporate earnings growth to resume is somewhat surprising.

Second-quarter earnings season has all but wrapped up, now that retailer Walmart has reported its results. Investors are at least pleased the dip in profit growth by companies in the Standard & Poor’s 500 was less than expected. The companies ended up reporting 2.1% lower adjusted profit per share, somewhat better than the 5% profit drop expected on July 1, S&P Global Market Intelligence says. It’s the fourth consecutive drop in quarterly earnings growth.

Stock prices, though, keep moving higher and are trading near all-time highs. “Investor optimism remains unscathed,” Michael Thompson, managing director of S&P Investment Advisory Services, says in a note to clients. Meanwhile, the S&P 500 is trading for “an elevated” valuation of 17.6 times expected profit over the next 12 months.

Perhaps most surprising is investors’ Teflon optimism remains intact as the timetable for the S&P 500’s return to corporate profit growth keeps getting pushed back. Currently, analysts are forecasting another drop in corporate profits, by 0.03%, in the third quarter. In April, analysts thought corporate profit would rise by 4.8%. Now, investors are closely watching the fourth quarter of 2016 and the first quarter of 2017 as being the time earnings growth returns. We’ll see.