Companies beating third-quarter earnings estimates: 75%

By Simeon Hyman | November 2, 2011
  • What's Happening

    What's Happening

    Beaten and bruised by a volatile stock market, many investors have scrambled to the sidelines for safety -- and to catch their breath. For five months in a row, U.S. mutual fund investors pulled money out of the stock market -- even as it went on a fairly steep climb in October. The S&P 500 was up 14 percent for the month, after hitting a 13-month low on Oct. 3.

    Photograph by Jin Lee/Bloomberg

  • Why It Matters

    Why it Matters

    The likelihood of recession has dimmed. The economy grew at 2.5 percent last quarter, and three-quarters of S&P 500 companies reporting earnings so far have beaten analysts' estimates (the historical average is closer to 60 percent). The recent outperformance of cyclical sectors -- industries that are most sensitive to the economy, such as airlines and carmakers -- further eased recession worries. Add to the mix any reasonable solution to the European debt crisis and this rally might have legs.

    Graphic by Brad Evans

  • What It Means for Your Portfolio

    What It Means to Your Portfolio

    If you stay on the sidelines too long, in cash or bonds, you can lose ground to inflation (and trying to time the market rarely works). Stocks trade at about 13 times earnings -- relatively cheap compared to historical valuations. Sam Stovall, chief equity strategist at Standard and Poor's, found that the S&P 500 historically has had an average return of nearly 32 percent for the 12 months following the kind of correction seen over the summer. Then again, a "reasonable solution" to the European crisis might not take hold, and debt contagion from Europe could yet overwhelm stocks.

    Graphic by Brad Evans

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