Fourth-Quarter Earnings Seen Bringing Comfort to U.S. Investors

• Projected S&P 500 decline in line with previous two quarters

• Morgan Stanley strategist expects `a catalyst to calm fears’

By David Wilson

(Bloomberg) – Fourth-quarter earnings estimates are following the usual pattern and the results will ease concern stemming from this year’s losses in stocks, according to Adam Parker, Morgan Stanley’s chief U.S. equity strategist.

The chart below tracks projected percentage changes in Standard & Poor’s 500 Index earnings for the quarter, as compiled weekly by Bloomberg. The outlook is based on analysts’ company-specific estimates.

Analysts expected the S&P 500’s fourth-quarter profit to fall 6.7 percent as of last week, just before companies began reporting results. They previously were looking for declines of 6.9 percent for the third quarter and 6.5 percent for the second quarter at the start of earnings season. The earlier losses amounted to 3.1 percent and 1.7 percent, respectively.

“A lowered bar for earnings should be cleared,” Parker wrote yesterday in a report. The New York-based strategist cited a shift among companies away from reducing earnings estimates, “a relatively robust U.S. consumer” and smaller moves in currency, oil and interest rates than in the third quarter. For this year, he expects 4 percent profit growth.

S&P 500 companies made 2.62 cuts to fourth-quarter forecasts for each increase, according to data cited in the report. The ratio dropped from 3.13 a year earlier and was the lowest in four years.

The Bloomberg Dollar Spot Index, based on the U.S. currency’s value against 10 other currencies, rose 1.6 percent last quarter after climbing 2.8 percent in the third quarter. Crude oil’s decline slowed to 18 percent from 24 percent in New York trading. The yield on 10-year Treasury notes rose 0.23 percentage point, to 2.27 percent, after a 0.32-point decline three months earlier.