By Sue Chang, MarketWatch

71% of S&P 500 companies beat on earnings in second quarter

This bull market may be long in the tooth, but stocks could still nudge higher next week if earnings continue to surprise on the upside and data reinforce the perception that the U.S. economic recovery remains intact.

The S&P 500 rallied 3.6% in July for a five-month winning streak that brought its year-to-date gains to 6.3%. The Dow Jones Industrial Average added 2.8% in July -- its sixth consecutive monthly advance -- to climb 5.8% this year, while the Nasdaq Composite jumped 6.6% in July to bring its 2016 advance to 3.1%.

"The market has been expecting earnings to be C or C+, but so far this quarter earnings have been a B-," said Jack Ablin, chief investment officer at BMO Private Bank.

With 63% of S&P 500 companies having announced quarterly results, 71% have beat on earnings and 57% have reported revenue above estimates, FactSet data show. The percentage of companies turning in better-than-expected earnings per share is above the 1-year average of 70% and 5-year average of 67%, said John Butters, senior earnings analyst at FactSet.

Investors will be hard pressed to keep up with corporate news in the coming week with over 100 S&P 500 companies scheduled to release financial results. Among notable names on the calendar are General Motors Co. (GM), Ford Motor Co. (F), Pfizer Inc. (PFE), American International Group Inc. (AIG), Time Warner Inc. (TWX), Humana Inc. (HUM), Costco Wholesale Corp. (COST), Kraft Heinz Co. (KHC), and Priceline Group Inc. (PCLN).

Read: How the biggest companies in the S&P 500 use made-up earnings numbers (http://graphicsdev.dowjones.net/users/marrinerk/mw/gaap-vs-nongaap-earnings/)

Even the fact that the S&P 500 moved within a daily band of 0.92% over the past 11 days -- the narrowest range in over 45 year s (https://lplresearch.com/2016/07/29/welcome-to-the-most-boring-market-in-21-years/?link=mktw) -- is a positive sign as "tight ranges like we are in now tend to resolve higher," said Ryan Detrick, senior market strategist at LPL Financial.

Frank Cappelleri, executive director of institutional sales at Instinet, likewise believes the market is behaving just as it should given the roller coaster ride in the aftermath of Brexit.

"The best case scenario after the breakout through 2,135 was to do just this -- constructively digest the move," he said in a note.

Meanwhile, economic indicators are expected to have a bigger impact on the stock market given the absence of high-profile earnings, Ablin said. Key data include ISM manufacturing for July, consumer spending and inflation for June, and July nonfarm payrolls.

The July jobs data, due Friday, will be of particular interest as investors look to get a better handle on the labor market after a dismal May report was followed by robust June employment (http://www.marketwatch.com/story/jobs-roar-back-in-june-but-heres-why-you-shouldnt-get-used-to-it-2016-07-11)gains.

And despite disappointing gross domestic product growth in the second quarter (http://www.marketwatch.com/story/us-economy-grows-only-12-in-q2-below-expectations-2016-07-29), a spate of robust indicators could boost expectations for an interest-rate increase after the Federal Reserve stated this week that near-term economic risks have receded (http://www.marketwatch.com/story/fed-appears-more-open-to-september-rate-hike-2016-07-27).

Looking beyond next week, the market outlook gets murkier given that August is statistically a weak month.

Over the past 10 years, the S&P 500 has, on the average, dropped 0.65% in August, according to LPL Research.

One of the biggest cheerleaders in the market, Tom Lee at Fundstrat Global Advisors, earlier this month warned of a possible August selloff, noting that four out of the six recent Augusts have brought big drops.

"We are scared about the month of August," he said.

Still, Lee stressed that he remains "overwhelmingly" positive given improving credit conditions, solid earnings and the S&P 500's recent breakout and sees any dips as buying opportunities.

 

(END) Dow Jones Newswires

July 30, 2016 14:16 ET (18:16 GMT)

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