S&P 500 earnings are now expected have increased slightly in the third quarter, reversing forecasts for another quarter of profit declines, Thomson Reuters data shows.
A quarter of profit growth would mark an end to the U.S. profit recession that began in the third quarter of 2015 and fuel investor hopes that better earnings can boost U.S. stocks in the final quarter of the year.
The improvement in earnings projections follows mostly stronger-than-expected results from Bank of America (BAC.N) and other financials, though reports so far are in from just 52 of the S&P 500 companies.
Based on those results and estimates for the rest of the companies as of Tuesday, S&P 500 earnings are projected to have increased 0.2 percent in the quarter ended Sept. 30. That would be up from a decline of 0.5 percent forecast two weeks ago, the data shows.
“I think there is growing consensus that perhaps this a turnaround in the earnings for the S&P 500,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
“Fundamentally, that’s a positive, but it’s a psychological positive as well. And if we see followthrough in the next couple of quarters, it helps to address some of the valuation concerns that some investors have.”
After rising sharply in early July, the benchmark index .SPX has been drifting mostly sideways to lower. But it is currently trading at about 16.5 times forward earnings estimates, above the long-term average of about 15, Thomson Reuters data shows.