Weak third-quarter earnings could mean strong stock buying opportunities

While the S&P 500 has risen substantially over the last several months, the weak earnings that have been predicted by certain market experts could result in low values for stocks and strong buying opportunities for investors.

S&P’s recent rally
The blue-chip index most recently closed 0.4 percent higher at 1,450.99 on October 3. Between a recent low that the S&P Index hit on June 1 and the four-year high that it reached on September 14, the group of stocks surged 15 percent.

One major contributor to this strong rally was optimism that central bank stimulus happening worldwide will help to invigorate the stalling global economy, according to Bloomberg. The European Central Bank pledged to buy bonds in order to control the borrowing costs of troubled nations in the euro zone.

The Bank of Japan stated that it would add to a fund that it uses to stimulate the nation’s economy. In addition, Federal Reserve Chairman Ben Bernanke stated that his institution will buy mortgage-based debt at a rate of $40 billion per month for as long as needed.

Strong economic data
The media outlet reports that strong economic data reported in the recent past has served as a boon to the value of the stock market. For example, the ADP jobs report that was released on October 3 stated that 162,000 new positions were created in the United States in September, which helped to push equities higher.

Third-quarter earnings
Major companies will soon begin reporting their earnings for the fiscal third quarter, with major aluminum producer Alcoa Inc. providing figures for the period on October 9. Data compiled by Bloomberg predicts that earnings for the companies contained in the S&P 500 will drop 2 percent from the prior quarter.

“There has been an ongoing tug of war as to whether or not the liquidity coming into the markets can counteract perhaps weaker earnings,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial, which manages $943 billion, told the news source in a phone interview.

If the earnings that companies report fail to impress investors, they may push the value of various stocks lower in response and this momentum may overcome the boost that equities have received from both worldwide central bank stimulus and strong economic data. 

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