WSJ: US Corporate-Profit Growth Coming to Sudden Halt

Tuesday, 31 Jul 2012 07:54 AM

By Dan Weil

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Profits for companies in the Standard & Poor’s 500 Index have grown for 10 straight quarters, helping to power the index to a more than twofold increase since March 2009. But experts warn that the profit ascent is about to reverse, thanks to the global economic slowdown, The Wall Street Journal reports.

Indeed, analysts predict net income for S&P 500 companies will decline 0.4 percent in the third quarter from a year earlier, according to Reuters.

Starbucks just trimmed its third-quarter profit estimate amid slow customer traffic at its U.S. coffee houses.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“This is not a Starbucks issue,” Chief Executive Officer Howard Schultz said on a conference call with analysts last week. “This is a macro problem of weak consumer confidence.”

Another problem for earnings is the dollar’s strength. The currency gained 5 percent against the euro in the second quarter.

One might think instinctively that a strong dollar is good for U.S. companies. But it makes their exports more expensive, and it makes their overseas earnings worth less when repatriated back to dollars.

Stumbling earnings also are helping to puncture the bubble of Internet-social networking stocks, such as Facebook, Zynga and Groupon, according to The New York Times.

“The gleam has come off the word ‘social,’” Ben Schachter, an Internet analyst with the Macquarie Group, told The Times. “The ground is now shifting underneath these companies’ feet at a speed that we didn’t see even in the late 1990s.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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