Four times a year investors focus on the most fundamental driver of investment performance: earnings. The third 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.

The analyst consensus estimates for the earnings of S&P 500 companies in the third quarter fell sharply in the first five months of the year. Then, they stayed relatively flat despite a steady improvement in leading indicators of profit growth that we have highlighted in prior weekly commentaries, such as the ISM index and even our own Current Condition Index.

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