Lou Mannheim, stock broker and moral compass in the 1987 movie Wall Street, offered timeless investment advice. Played by Hal Holbrook, Mannheim at one point warned his greedy colleague Bud Fox (Charlie Sheen):

“Stick to the fundamentals. That’s how IBM and Hilton were built. Good things sometimes take time…Remember there are no shortcuts, son. Quick-buck artists come and go with every bull market. The steady players make it through the bear markets.”

One of the key fundamentals is corporate earnings. As investors grapple with bearish factors and rising risks, the latest earnings projections bode well for the stock market. But first, let’s look at the mixed bag of market news.

The stock market rally of the past summer has hit a brick wall. We’re on pace this week for a second consecutive month of losses. The prospect of higher interest rates, for longer, has soured sentiment.

The benchmark 10-year U.S. Treasury yield (TNX) has shot past its multiyear resistance level of 4.50%, making investors jittery and pressuring stocks. The S&P 500 has fallen below its 50- and 100-day moving averages.

This week, we received a spate of negative economic reports (e.g., declining housing starts and eroding consumer confidence). However, there’s still sufficient strength in the economy to shore up equities. Notably, the Labor Department reported Thursday that first-time filings for unemployment insurance in the U.S. for the week ended Sept. 23 rose 2,000 to 204,000, compared to 215,000 expected and 202,000 in the previous week (see chart).

The U.S. labor market is cooling but remains tight. Job security and wage gains will continue to fortify the consumer and provide a buffer against economic deceleration.

This balance lifted stocks Thursday, although still not enough to salvage a losing September. The main U.S. stock market indices closed higher as follows:

• DJIA: +0.35%
• S&P 500: +0.59%
• NASDAQ: +0.83%
• Russell 2000: +0.87%

The CBOE Volatility Index (VIX) dropped nearly 5% to settle at about 17 and the TNX slipped 0.63% to close at 4.59%.

WATCH THIS VIDEO: Assessing The Latest Risks to The Rally

According to research firm FactSet, for the third quarter of 2023, the estimated year-over-year earnings decline for the S&P 500 is -0.2%. However, the earnings outlook for the S&P 500 for Q3 is far less negative compared to recent quarters. It’s also less negative compared to recent forecasts.

The estimated Q3 earnings decline of -0.2% (as of this writing) is smaller than the estimate of -0.4% at the start of the quarter (June 30). What’s more, if recent history is any guide, upside surprises will probably lift overall Q3 earnings into the black by the time earnings season is over.

Eight of the 11 S&P 500 sectors are projected to report year-over-year earnings growth for Q3, led by communication services and consumer discretionary.

The S&P 500 is expected to report year-over-year revenue growth in Q3 of 1.5%. If 1.5% turns out to be the actual revenue growth rate for the quarter, it will mark the 11th consecutive quarter of revenue growth for the index. Nine sectors are projected to report year-over-year growth in revenues, led by consumer discretionary and real estate.

Looking further out, the picture is even brighter. The consensus of analysts expects year-over-year earnings growth of 8.2% for Q4 2023. For calendar year (CY) 2023, analysts predict earnings growth of 1.1%. For CY 2024, analysts are calling for year-over-year earnings growth of 12.2% and revenue growth of 5.6%.

Companies also are becoming more adept at coping with inflation, through price increases and cost cutting. Seven sectors are expected to report net profit margins in Q3 2023 that are above their five-year averages, led by energy (10.8% vs. 8.2%).

Corporate earnings aren’t showing gangbusters growth, but they’re still pointing to better days ahead for the stock market. However, if you’re spooked by market uncertainty, consider the advice of my colleague, Jim Pearce.

Jim Pearce is the chief investment strategist of our flagship publication, Personal Finance. Jim started his career as a stock broker more than 40 years ago. If anyone understands fundamentals, it’s Jim.

Jim has unearthed a once “secret” income power play that’s giving everyday investors the opportunity to collect huge payouts, regardless of Fed policy or the ups and downs of the markets. To claim your share, click here.

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: