US corporations led by Coca-Cola Co, General Motors Corp and Citigroup Inc are exceeding earnings estimates at the fastest pace in three years, helped by costs cuts, rising consumer spending and a decline in the dollar.
Second-quarter profits for the Standard & Poor's 500 are expected to rise by 6.9 percent, revised from 5.2 percent earlier this month, according to analysts surveyed by Thomson Financial.
Two-thirds of 158 companies reporting so far have topped forecasts, the highest percentage since 2000's first quarter.
The earnings gains are giving investors greater confidence in an US economic and earnings recovery in the second half of the year. Rising consumer confidence, US$330 billion in US tax cuts, Federal Reserve interest-rate reductions and a falling dollar will contribute to accelerating growth, they said.
"The economy is getting stronger," said Robert Benson, who helps manage US$300 billion for Banc of America Capital Management.
"We are seeing some strength in manufacturing. Consumer spending is still holding up well. We also have a weaker dollar and could see some benefit from that," he said.
Stock prices reflect an expected recovery, investors said. The Standard & Poor's 500 has risen 13 percent this year after falling 23 percent last year.
The Dow Jones Industrial Average has gained 10 percent in the period while the NASDAQ Composite Index has jumped 28 percent.
The gains for US stocks in the second quarter were the biggest in four-and-a-half years.
"The news is generally good," said Peter Sorrentino, who helps manage US$2.3 billion for Bartlett & Co.
"The one shortfall of the reporting season is revenue growth. It is still a cost cutting and efficiency story. A lot of the revenue growth has been due to currency translation with the softer dollar," Sorrentino said.
Coca-Cola, the world's largest soft-drink maker, said second-quarter profit rose 11 percent. Results were aided by currency translation for the first time in seven years, Gary Fayard, chief financial officer, said on a conference call.
Excluding costs for job reductions, earnings were 3 cents a share more than the US$0.54 average forecast of analysts.
Citigroup, the world's biggest financial company, said earnings rose 5 percent as credit-card and mortgage lending drove revenue to a record.
Net income rose to US$4.3 billion, or US$0.83 a share, beating the US$0.80 forecast of analysts.
Financial-services companies had some of the biggest gains among the 10 industry groups in the S&P 500, with an average profit increase of 18 percent, according to Bloomberg data.
A rise in US unemployment to a nine-year high last month has curbed the growth in consumer spending, though not as much as some analysts expected.
General Motors Corp, the world's largest automaker, said net income fell 30 percent to US$901 million, or US$1.58 a share, exceeding the average analyst estimate of US$1.19 a share.
GM's sales were unchanged at US$48.3 billion.
"As we look at demand here in the US market, so far this year it's been a little above expectations," said General Motors chief financial officer John Devine.
"June was pretty good. July looks pretty good. It's giving us some optimism that the rest of the year will not be terrific but better than say the first quarter," he said.
Business spending remains sluggish, which may hamper the rate of recovery of earnings of some computer-related companies, analysts said.