False hope can't save Wall Street

All eyes are on Wall Street for the third-quarter earnings season. But the outlook in the new year is troubling, as cost-cutting - which has boosted earnings for the first two quarters - can't go on forever.

All eyes are on Wall Street now that the reporting season for third-quarter earnings has begun. Earnings surprised on the upside in the first and second quarters and it will be a similar story this season, says the FT's John Authers. In recent years firms have become adept at lowering expectations and then surprising investors positively by beating them.

Indeed, most of the market's gains come when "manufactured surprises are revealed", says Authers. Andrew Lapthorne of Socit Gnrale found last year that since 2000, the S&P has gained an annualised average of 2.3% during the first-, second- and third-quarter reporting seasons. Outside these periods, the S&P was down on average by an annualised 1.2%.

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