Four times a year investors focus on the most fundamental driver of investment performance: earnings. The second quarter earnings season gets underway this week. However, the companies that report early in the season are most often not the bellwethers they are commonly thought to be. We will not really know how results are shaping up until the end of the month when about half of the companies will have reported.
As companies report their second quarter results, we will be looking most closely at third quarter earnings guidance. The expectations for the third quarter matter more than results for the second quarter, since the economy showed signs of bottoming during the second quarter and investors are focused on the impact of this change in direction for profits. Second quarter GDP is likely to have been negative, reflecting shrinking economic output. However, in the third quarter GDP is likely to be positive, as the economy begins after a year of contraction.
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