Many of the companies reporting improved profits from a year ago accomplished it by cutting costs through layoffs and other belt-tightening measures. Few actually saw profitability rise through increased revenue. Even though those beating expectations helped drive investors into the market, the reality is that about two-thirds of the companies reporting second-quarter results actually posted poorer performance than a year ago.

"Companies are reporting horrible year-over-year comparisons both on the revenue and the profit line -- typically negative double digits on both accounts," said Paul Larson, equities strategist for Morningstar Inc.
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All told the S&P 500 Index companies are reporting lower profits than a year ago. Last week around 200 of the index companies had reported and about 137 posted lower earnings. More than 100 additional companies reported this week with similar trends continuing.
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He said a primary concern is whether the optimism will set investors up for disappointment if some of the rosy view fades and the market falls back when it appears a quick economic recovery isn't imminent.

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