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Don’t be deceived by S&P earnings growth: Pro

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The market has historically been undervalued, and earnings growth this past quarter has given hope to some investors. But strategist Richard Peterson is urging caution.

At face value, earnings growth was better than expected in the second quarter, according to Peterson, market strategist at S&P Capital IQ.

"We were looking for less than 3 percent growth. Now with over 95 percent of the companies reporting, we're seeing S&P earnings growth of 4.8 percent, so it looks better than expected. But in fact if you look at ... a broader trend, we're seeing deceleration in earnings," Peterson said.

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In the fourth quarter, earnings growth for S&P 500 components reached 7.7 percent. Growth in the first quarter was at 5.2 percent and the estimate for the third quarter is just 3.8 percent, Peterson noted.

And excluding financial stocks, earnings growth among S&P 500 components is even more of a concern, Peterson said.

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"This quarter, we're looking for 0.3 percent earnings growth this period. And if you look at over the past four quarters, two of the past four quarters for earnings ex-financials have either been flat or negative," Peterson said.

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