Are Profits Stronger Than We Think?

Are corporate profits much stronger than we think? Although earnings for the S&P 500 have been down roughly 2 percent on the year, a report from the Fed indicates a different trend. The Fed's measure of “Nonfinancial Corporate Business” profits before taxes for the quarter that ended in June shows them increasing by 11 percent year-over-year. That's the strongest growth by that measure since the fourth quarter of 2012.

Even in the S&P, though, the real earnings weakness inheres almost entirely in energy companies, which are projected to fall more than 60 percent in both the third and fourth quarters. Excluding them, S&P 500 profits are estimated to rise 0.1 percent and 3.9 percent in the final two quarters of the year.

Looking at raw figures rather than growth, earnings in the S&P 500 are still above the record level they first reached in 2011, despite the weakness in the energy sector. The S&P 500's net income has roughly doubled since 2009.