Story Highlights:

• Headlines attributed a recent market slide to weak earnings reports, but fact is earnings results thus far are pretty mixed. There are many companies posting healthy earnings and outlooks.
• Final Q3 earnings may end up okay, so-so, or weak, but the important thing for investors is forward expectations. Markets seem to be pricing in doomsday, but ex-Financials, earnings point to only mild weakness.
• There are still a lot of unknowns both investors and companies are struggling with, but we’d advise never underestimating capitalism’s long-term adaptive ability.

 (Editor’s Note: MarketMinder does NOT recommend individual securities; the below is simply an example of a broader theme we wish to highlight.)

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There’s a chill in the air, and it’s not just the seasons changing. Markets were left in the cold on Wednesday and continued to experience negative volatility on Thursday before ending up. Headlines attributed the recent market slide to weak earnings reports—based on reported third quarter earnings thus far, S&P 500 companies are currently on track to be 10% lower than a year ago. There’s concern these reports prove the depth and duration of an economic downturn may be deeper and longer than expected.

Next week’s GDP numbers could show economic growth slowed or was negative in the third quarter, but given the circumstances that wouldn’t be too surprising. What may be surprising is plenty of companies actually did quite well last quarter. Headlines concentrate mainly on the negative earnings reports, but fact is earnings reports thus far are pretty mixed. Here is a smattering of positive ones from this brief earnings list from Wednesday:

• Con-way posts higher profit
• Amgen reports dramatically higher earnings on charges
• Amazon posts quarterly profit, sales gains
• ConocoPhillips net income climbs 41%
• Philip Morris third-quarter net income up 21%, affirms view
• Baker Hughes 3rd-quarter net up 10%, revenue up 12%
• Tupperware 3rd-quarter profit jumps on 13% higher revenue

This isn’t a scientific representation but does drive home the point that big, bellwether companies are holding up right now. In total, earnings results thus far are mixed. A Bloomberg earnings season analysis* shows that, of reported earnings for tracked public companies across all sectors, 449 companies posted positive growth and 404 posted negative growth. Negative growth by dollar value is largely concentrated in Financials, while most other sectors have more companies posting positive than negative growth. Whether final Q3 earnings end up okay, so-so, or weak, the important thing for investors is forward expectations. Markets seem to be pricing in doomsday, but ex-Financials, earnings point to only mild weakness.

Q3 earnings will be far from stellar. Still, it’s clear there will be plenty of companies posting healthy earnings and outlooks—the ballyhooed earnings doomsday scenario still has yet to show itself. The more important thing, of course, is to consider how companies will fare in the coming quarters. There are still a lot of unknowns both investors and companies are struggling with—some linked to how quickly credit markets will loosen up. Often in such times, investors tend to project current bad news much further into the future than is likely reasonable. We’d advise never underestimating capitalism’s long-term adaptive ability. There are signs some of the most acute economic problems may be easing, and by most valuation metrics, stocks are cheap right now. If you believe equities have any value looking ahead, now is likely a great time to shake off the chill and own them.

*As of 10/23/2008