Transcripts

3rd Quarter Results Yield 4th Quarter Fears

PAUL KANGAS: Those high oil prices however are a big concern for American businesses and corporate earnings are a big worry as well. Third quarter results have been disappointing and as Suzanne Pratt reports, analysts are now raising red flags about the fourth quarter.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the first time in more than five years, quarterly earnings growth for corporate America looks like it will be negative for the third quarter. With 80 percent of S&P 500 firms having turned in results for the period, profit growth is averaging negative 1.7 percent. This follows many quarters of healthy earnings. Financials, led by Citigroup, were the primary culprit for the third quarter's poor showing. More than a third of financial firms issued numbers that fell short of expectations and profits fell 16 percent for the sector. Thomson Financial's Mike Thompson says the damage was localized.

MICHAEL THOMPSON, DIRECTOR OF RESEARCH, THOMSON FINANCIAL: If you extract out just a handful of industry groups, you can jump right back up to about 5 percent growth and those include the culprits in diversified financials, the investment bank and brokers and the homebuilders. We're talking about a handful of companies.

PRATT: Thomson Financial predicts weak results will continue in the fourth quarter. For example just today, it cut fourth quarter estimates for the S&P 500 to positive 6.9 percent. Yesterday, estimates stood at 8.7 percent. On October 1, they were 11.5 percent. But for now, it appears that profit problems will remain isolated to financials and home builders. For that reason, many experts believe the overall stock market can withstand further disappointments from large financials. Still, S&P strategist Alec Young says with several more weeks to go in the fourth quarter, it's hard to say how earnings will affect the market.

ALEC YOUNG, MARKET STRATEGIST, STANDARD & POOR'S: Overall we see the market in a trading range throughout the rest of the year. Low valuations kind of help support the, limit the damage on the downside. But a lack of economic and earnings visibility we think is probably going to prevent the market from hitting new highs through year end.

PRATT: Much of corporate America will report fourth quarter results in mid January. Experts say between now and then, it's still possible that fourth quarter earnings for the S&P 500 could also go negative. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.