4.23.2009

So Much For Earnings Killing The Rally

As we noted here and here, earnings estimates had become too negative as we kicked off earnings season and were a decent contrarian indicator in the short term. Hopefully the dire headlines of the potential for earnings to disappoint and derail the rally did not scare you out of stocks early. Stocks are actually up about 4% since Alcoa kicked off earnings a few weeks ago.

Bespoke Investment Group has the breakdown so far:
  • 430 US companies and 156 S&P 500 companies have reported results for the first quarter
  • The number of firms beating expectations has steadily increased to 57% from 50% at the end of last week
  • Last quarter 55% beat expectations
  • Of the 156 S&P 500 companies to report, 67% have beat expectations

It's only 30% of the S&P so far, but the point is clear, don't believe everything you read.

Posted by moneyneversleepsblog at 6:57 PM
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2 comments:

  1. Does it matter that earning all beat way reduced expectations? Does it matter that revenues are declining and business forecasts are worsening? To what do you attribute this rally? What do you think of the reduced volumes?

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  2. The important issue to consider is the earnings reaction, that is where an investors profit comes from. The point we are trying to make is that earnings estimates became too negative therefore there was a profit opportunity for many stocks. Of course revenues are declining, that is all known. The known details have already been factored in. The unknown will drive the market going forward.

    We would attribute this rally to a technical oversold bounce with too much negative sentiment. We would argue that the volume in this rally is MUCH better than the previous rally. End of day strength has also been encouraging. More on that debate here:

    http://moneyneversleepsblog.blogspot.com/2009/04/is-this-another-bear-market-rally-does.html

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