From Bob Doll:
Equities may struggle until corporate earnings improve.
For the past 18 months, equities have been able to make modest gains despite declining corporate profits. This has largely been due to highly accommodative monetary policy and central banks’ willingness to engage in new easing measures. Additionally, investors have been willing to look past the earnings recession since we have not seen a corresponding economic recession. Looking ahead, we believe earnings must advance for equity markets to make meaningful gains. It is early in the third quarter reporting season, but so far the news hasn’t been favorable.
It may take another quarter before corporate earnings accelerate.
At present, consensus expectations are that earnings will decline 3% in the third quarter while revenues rise 3%. Excluding energy, earnings would be up 1% with revenues advancing 4%. Conditions should improve in the fourth quarter, with consensus expectations pointing to a 6% earnings increase…..