Companies and Investors Gear Up for Earnings Season

The government might be shut down, but Wall Street is hoping the private sector can continue being the part of the economy that is operating smoothly.

Third-quarter earnings season is kicking off in earnest after aluminum producer Alcoa was one of the largest multinational firms to provide its results. And investors are hoping that corporate profits will continue to be one of the bright spots of the economy, even as the stock market falters amid a political stalemate.

Overall, corporate profits are expected to set a new high-water mark on a dollar basis, rising 11.5% from year-ago numbers when including all stock-option and pension costs, says S&P Dow Jones Indices. If that is the case, it will be the fastest rate of earnings growth since the third quarter of 2011, when earnings rose 17.3%, and also a record level of profit. Alcoa started the season off strong on Tuesday after reporting adjusted earnings of $120 million, or 11 cents a share, more than twice expectations.

"Anything that is a new record is impressive," says Howard Silverblatt of S&P Dow Jones Indices.

Company-specific analysts, though, have more muted expectations. Those analysts are calling for 3.1% growth, says S&P Capital IQ.

Investors looking deeper into analysts' expectations see:

--Big growth from telecom and consumer discretionary. Earnings growth of 26% and 11% are expected, respectively. But the biggest dollar contributors to earnings will be financials and information technology, Silverblatt says.

--Companies guarded about the future. So far, 105 companies have given guidance: 62 negative, 22 positive. The closely watched ratio of positive-to-negative announcements is 3.1, which is above the average over the past 15 years, S&P Capital IQ says.

--Analysts have been pulling back. At the start of the year, analysts were calling for 9.8% earnings growth in the third quarter. But that's fallen steadily until hitting the current 3.1%.

--Revenue growth...

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