Transcripts

2nd Quarter Low Profits But High Expectations

SUSIE GHARIB: And speaking of earnings, corporate America is wrapping up its latest quarterly earnings season. Although the results were dismal, analysts are optimistic about the outlook from here. Erika Miller explains why.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Wall Street, it is good riddance to first quarter earnings season. Ninety percent of the S&P 500 have reported and the results are not pretty. Profits are running 17 percent below last year, far worse than the 4 percent decline analysts were expecting at the start of the quarter. Earnings expert Mike Thompson says financials were the major drag.

MICHAEL THOMPSON, DIRECTOR OF RESEARCH, THOMSON REUTERS: You have the financials again, continuing to have a real negative impact, down almost 80 percent for the quarter. Expectations were it wasn't going to be that bad. The only good news is it was better than last quarter, the fourth quarter, where it was down over 125 percent.

MILLER: But there are a few positives buried in the data. Excluding the financial sector, profits are up more than 7 percent. On top of that, 62 percent of S&P 500 companies are beating estimates, which is in line with the historic average. The big question is the outlook for earnings in coming quarters and on that front, corporate America doesn't appear to have much visibility.

THOMPSON: I think the corporations are really having challenges, because we seem to be at this inflection point whereas either the economy and their businesses are going to kind of fall off even further or we're bottoming out and perhaps we've seen the worst.

MILLER: For now, Wall Street analysts are predicting earnings will drop 6 percent in the second quarter, gain 14 percent in the third and rise 62 percent in the fourth. Stephen Wood, portfolio strategist at Russell Investments, thinks that second half outlook is optimistic, but he still thinks now is a good time to buy U.S. stocks.

STEPHEN WOOD, SR. PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS: I think we're probably looking at an end of third quarter, beginning of fourth quarter phenomenon, before you see the economic and the earnings news improve dramatically which means the stock market moving now is a reasonable expectation, you know, nine months ahead of time.

MILLER: With earnings season basically over, investors are turning their attention back to economic data. The big fear is that consumer spending could slow sharply, hurting the U.S. economy and corporate profits. Erika Miller, NIGHTLY BUSINESS REPORT, New York.