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Wall St Week Ahead-Double-digit profit growth may return in Q.

NEW YORK, Ramadan 6, 1435, Jul 4, 2014, SPA -- With all the hoopla over the Dow topping 17,000 out of the way, the market's next focus will be whether the fast-approaching earnings season can justify U.S. stocks climbing further into record territory.

Many factors point to a second-quarter earnings season poised to surprise substantially to the upside. There is an outside chance that profits for S&P 500 companies could return to double-digit growth for the first time in nearly three years.

On the heels of Thursday's strong U.S. employment report, some economists have begun talking up prospects for a 4.0 percent annual growth rate in gross domestic product for the April-through-June period, a dramatic snap back from the first quarter's contraction of 2.9 percent.

Analysts polled by Reuters are calling for earnings growth for the second quarter of 6.2 percent, and a return to double digits in the third and fourth quarters: 10.9 percent and 11.9 percent, respectively. The last time that S&P 500 earnings achieved double-digit percentage growth was the third quarter of 2011, when the growth rate was 18 percent.

Since the fourth quarter of 2009 when profits returned to growth after the recession, actual S&P 500 earnings growth at the end of each quarterly cycle exceeded the growth forecast at the start of each reporting period by an average of 5.7 percentage points.

For the first quarter, for example, the profit growth rate on April 1 was pegged at 2.1 percent. When the numbers from all 500 companies in the index were tallied, though, growth was actually 5.6 percent, 3.5 percentage points higher.

With the Dow and the S&P 500 in record territory and an S&P 500 price-to-earnings ratio of 15.6, the highest in nine years, a substantial break to the upside on earnings would be a welcome development for investors.

-- SPA

22:23 LOCAL TIME 19:23 GMT

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Publication:Saudi Press Agency (SPA)
Date:Jul 4, 2014
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