There's a term on Wall Street known as ''easy comps" in which corporate profits, typically, are able to grow substantially simply because the year ago period was in some way impaired or hindered, thus making for easy comps or comparisons.
This is particularly pertinent right now since we are just about to hit the heavy weeks of third quarter earnings season, where expectations are pegged at -2.7%, which would mark the first negative quarter since the recession ended in 2009.
But just like the old adage that says if you don't like the weather, just wait a while, Factset senior earnings analyst John Butters says the same holds true for earnings, at least when it comes to what analysts expect from the fourth quarter and next year.
"Looking ahead to the fourth quarter, (analysts) are expecting this hockey stick style recovery where earnings jump back up to almost 10%," Butters says in the attached clip. As for the 2013 outlook, Butters says it is ''fairly optimistic" too, with Wall Street's number crunchers currently calling for "11% earnings growth and 4% growth in revenues."
Forget the fiscal cliff, political uncertainty, Europe and China. Butters says 2013 will be another record year for corporate profits. At least that's how things are being factored-in today.
But it's not all bullishness and hype out there. Butters points out that just like the falling expectations that now frame the third quarter, analysts have spent the past three months re-thinking what once was a 14% growth rate for Q4, and have now taken it down by a third and will likely keep lowering it until we start getting the reports in January.
To attain that lofty year-end growth goal, Butters' research shows that two key sectors will lead the way.
"Q4 will be driven by financials and materials, but broad-based growth is expected from all 10 sectors."
Because this forward forecast is still so high, he says investors will have to pay extra attention to any guidance that come outs. So far, Butters says, only 11 companies have offered outlooks, but unfortunately, all 11 have been negative.