Posted 01/31/2014 04:41 PM ET
Earnings growth heated up at the end of 2013, led by technology and financial giants, though emerging markets may cloud Q1.
With about half (249) of S&P 500 companies already reporting, analysts expect fourth-quarter earnings growth of 8.9%, according to data compiled by Thomson Reuters. That would be the best gain in two years and significantly better than the 7.6% seen at the start of the year.
So far, 69.5% have topped expectations vs. 20% falling short. That's better than normal, but also reflects companies keeping expectations low, with an unusually high number of negative preannouncements.
"The fact that companies themselves were so negative before the earnings season started kind of makes it surprising that they're beating their earnings projections so much," said Gregory Harrison, a senior research analyst at Thomson Reuters.
Financials lead with a 23.6% expected gain. Insurers benefited from easier comparisons vs. Superstorm Sandy in Q4 2012. Bank of America's (BAC) profit jumped by nearly $3 billion as its revenue rose and mortgage losses shrank.
Technology earnings are on track to rise 8.2%. Revenue growth should climb 5.4% — better than any other sector — and overall S&P 500 sales should edge up just 0.9%, continuing a long string of sluggish top lines.
Facebook (FB) on Jan. 29 reported an 82% earnings gain and revenue growth accelerating to 63%.
The energy sector remained a laggard in Q4, with earnings looking to fall 9%, while coal miners, refiners and oil majors struggled for various reasons.
Michael Kors Holdings (KORS) and LinkedIn (LNKD) are two top companies on tap for earnings in the coming week.
Solid earnings mirrored an improving economy: Gross domestic product rose at a 4.1% annual rate in Q3 and 3.2% in Q4. Those factors help explain the S&P 500's 29.6% rally last year.
Stocks also have been buoyed by massive monetary stimulus. And with the Federal Reserve starting to taper bond buying, investors have become less bullish, especially in emerging markets. Turkey, South Africa, India and Brazil have all had to hike rates to shore up currencies or control inflation.
Developing nations' market worries have led even more companies to warn of Q1 results.
"Whichever way the current turmoil settles down, it will force an economic slowdown in the emerging markets, and that can't be good for earnings," said Sheraz Mian, director of research at Zacks Investment Research.
Analysts already have pared Q1 S&P 500 growth forecasts to 4.5% for earnings and 3.2% for revenue. Techs' profit should rise just 2.3%, with sales up 2.9%.
Read More At Investor's Business Daily: http://news.investors.com/business/013114-688446-earnings-season-strong-facebook-bofa-boost.htm#ixzz2sEIgHdkk
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