Recipe for a rally? Beat lowered estimates

The exterior of the New York Stock Exchange is seen in New York on May 13, 2011.

Credit: Reuters/Shannon StapletonBy Caroline Valetkevitch

NEW YORK | SAT July 9, 2011 1: 00 pm EDT

NEW YORK (Reuters) - Wall Street leaders in a typical game of the week next earnings season: worry many results and pleasant surprises rally then.

Analysts have been lowering estimates of the gains of the late and nervousness on the U.S. economic picture is abundant, especially after poor Friday June jobs report.

However, the profit growth might still be strong in the second quarter - and potentially increase stocks. The Standard & Poor 500.SPX fell 0.4% in the second quarter, but rallies in recent days on hopes for the improvement of economic conditions.

In the last month, analysts have revised downward their estimates of earnings for the S & P 500 companies, with the average change in the estimates of negative income 6.4 per cent, according to data from Thomson Reuters StarMine.

"I think that it is going to be lot of anxiety in it, and I think companies will continue what they have done for past quarters: put numbers better than expected and orientation should be OK," said Scott Billeaudeau, Portfolio Manager at fifth third Asset Management, in Minneapolis.

Compensation of S & P 500 components is expected to have increased by an average of 7.3% in the second quarter of last year, growth in the first quarter of 18.9%, Thomson Reuters data showed.

But the number could jump if most companies beat analysts forecasts. First estimates for growth of profits in the first quarter were about 13%.

"General economic data suggests some softness in the economy overall both globally and at the United States... which leads to realistic expectations a little more for businesses,", said Natalie Trunow, investment officer head of the shares of the investment management Calvert in Bethesda, Maryland, which manages about $ 14.8 billion.

In the coming week, the Federal Reserve will release of the minutes of its meeting of policymakers from 21 to 22 June. Among the United States of economic indicators in the tap are retail in June, June inflation readings of the US producer price index and the price to consumers at United States, industrial production and the use of the capacity for June and July preliminary reading in consumers of Thomson Reuters/University of Michigan surveys of consumers.

BANKS UNDER THE GUN

Financial services companies have seen more significant downward revisions in earnings estimates in the last 30 days, with banks taking some of the greatest success, including Goldman Sachs (GS.)(N) and Morgan Stanley (MS)(N).

JPMorgan Chase (JPM).(N) will be the first of the big banks to report, with results due Thursday. Results of player of high tech Google (GOOG).(O) also are expected Thursday, while aluminum company Alcoa (AA).(N) unofficially begins the season with earnings after the Bell Monday.

S & P.GSPF financial index fell by 6.3% in the second quarter as worries intensified about the impact of the debt problems of euro on the world economy area. The mean change for estimates of the earnings in the sector over the last 30 days is a 34.4% negative, StarMine data showed.

DISASTERS AND DISAPPOINTMENTS

Analysts also said following the earthquake of Japan, months of extraordinary weather conditions in the United States and increasing food and commodity prices took a toll on business in the second quarter.

StarMine analysis showed businesses, including the Platinum Underwriters Holdings (PTP.)(N), were likely to disappoint results due to tornado damage claims.

But companies have kept failure costs, which should support the stronger results, while also giving a hand actions, he said.

"I think that things in the macro, global, political noise continue to filter," said Mike Jackson, founder of the investment firm focused on the Denver T3 Equity Labs. But "you'll see high quality firms showing the (hand) last quarter surprises."

According to its own analysis, is expected to industry and public services to surprise upside, especially for the companies involved in "machines, and roads and rails" and electricity utilities.

On the flip side, he sees a high probability of earnings disappointments in the sectors of health care, consumer staples and materials.

An index of S & P.GSPA health care led gains in the S & P 500 in the first half of the year that the market has moved to defensive actions with the sector of the 14% increase since the beginning of the year, followed by an index energy of S & P.GSPE, an increase of 11%.

May health care sector subject to profit-taking once revenues start after his strong run so far this year, according to Tobias Levkovich, Chief U.S. equity strategist of Citigroup, which is developed in a research note.

Some analysts expect surprises to be less than in previous quarters, the percentage of companies beating expectations likely to be in the range of percentage of the mid-1960s, below the range of 70%, where he was in total.

S & P 500 total compensation could beat estimates by a "modest" 1 to 3%, Charles Blood, Brown Brothers Harriman senior market strategist, wrote in a research note.

"Margins generally occur in the second quarter, but our main concern and one of the largest investments debates, is,"how many room businesses have for improvement?"," wrote.

(Reports by Caroline Valetkevitch;) (Editing by Jan Paschal)