Investors will look to US companies to repeat last quarter’s stellar earnings performance when they begin reporting second-quarter results next week.

The earnings season follows sharp losses in the stock market and comes amid growing concerns about the strength of the recovery in the US.

In the three months to the end of June, the S&P 500 index recorded its worst performance since the last three months of 2008, falling almost 12 per cent.

Second-quarter earnings for companies in the S&P 500 index are expected to be more than 27 per cent higher compared with the same period a year ago, according to analysts’ forecasts collected by Thomson Reuters. It would be the third consecutive quarter of earnings growth after profits plunged in the wake of the financial crisis and recession which followed the collapse of Lehman Brothers in 2008.

Analysts expect earnings in the materials sector to have grown most, forecasting a 94 per cent rise. In total, eight of the S&P 500’s 10 sectors are expected to see improved earnings.

The telecoms and utilities sectors are the only two areas expected to report lower earnings than last year, down about 2 and 5 per cent respectively.

One factor that may help reported growth is the fact that earnings were so weak in 2009. Earnings for companies in the S&P 500 fell 27 per cent in the second quarter of last year compared with the same period in 2008 as the US economy fell deeper into recession.

Recently, in spite of the stock market’s falls, aggregate earnings forecasts for the S&P 500 companies in the second quarter have increased steadily as the end of June has approached, Thomson Reuters data show.

Companies should not have trouble meeting their forecasts, said Steve Hagenbuckle, managing partner at investment managing company TerraCap Partners, but that was largely because they had been successful in resetting expectations to lower levels.

Sharp movements in exchange rates, however, may have derailed some corporates’ profit targets.

The euro has lost about a tenth of its value against the dollar during the second quarter, with important implications for companies which have a substantial portion of revenues denominated in euros.

Last month Google’s revenue forecasts were cut by James Mitchell at Goldman Sachs and Douglas Anmuth at Barclays Capital, who both cited foreign exchange headwinds as a significant factor.

Investors will be watching companies’ outlooks for the second half, especially as economists have cut their growth expectations for the year. Alcoa will kick off the results season, posting its earnings on July 12.

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