First Yum! Brands (YUM) stumbled. Then JP Morgan (JPM) warned. Next it was IBM (IBM) that blew up. To suggest third-quarter earnings season has gotten off to a strong start would be a stretch to most market watchers. And yet, despite it all, LPL Financial's chief market strategist can list several reasons why he thinks it's too early to write-off the quarter just yet.
1. Improved Outlooks
As Jeff Kleintop explains in the attached video, at a time when already low estimates have gotten even lower, he's watching for a spurt of improved corporate outlooks thanks to positive purchasing manager index results from all corners of the world.
"That's improving profit momentum and that's a very good forward indicator, almost a perfect indicator, where profits are heading six months from now," Kleintop says. "They are headed sharply higher."
What that means is despite record negative pre-announcements or profit warnings that poisoned sentiment on last quarter's results, he says the final three months of the year will be marked by optimism. To be sure, as of the October 1st, analysts had already baked in ten percent fourth quarter profit growth for the S&P 500, and Factset data shows that number trending lower, not higher.
"I expect good guidance out of this earning season," he predicts, pointing to the end of a the recession in Europe, unprecedented stimulus in Japan, a stabilizing economy in China, and improving momentum in the U.S. "So yeah, I do think things are looking up."
2. Stronger Overseas Demand
Part of his optimism comes from the fact that he feels we are about to benefit from stronger overseas demand.
"The world is demanding more U.S. goods, and that's a big plus," he says. "Remember, the Eurozone is actually a bigger economy than the U.S., so it's a very powerful economic force."
3. Dividend & Buyback Increases
And finally, he's super fired up about a 15% increase in dividends, as well as continued growth of share buybacks, which he says are on a record breaking pace and "will be a big plus for shareholders."
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