It’s that time again!! Companies are in the process of revealing what has, is and may happen as they unleash their reports onto a waiting investing world.
Market pessimism about this earnings season, and therefore the legitimacy of current company valuations reflected in stock prices, have undoubtedly been one of the major factors in the recent pull-back (see the last couple of weeks action).
The reality of course, at this stage is the weekly S&P500 has and remains in an uptrend although further drop towards and through 1800 of the broader S&P500 index would be likely to challenge this.
Pre-earnings market jitters are far from uncommon, and frequently such pessimism may offer the potential for more surprises to the upside.
Those of you who have attended webinars (and see details of the next must see one below) I have run in the past will know this is the often the way things pan out.
So taking out the early first week results to date, what evidence do we have that to substantiate any reasonable belief that the current bear market is likely to continue?
- Despite recent Fed indications that interest rates may rise early in 2015, “cheap money” is still and has been available not just in the US but globally. Servicing loans is far from a hardship compared to loan costs historically, which not only is positive in cash-flow but also supports money available for growth
- Strong quarter PMI numbers out of the US and Europe, is supportive of a positive season as these are potentially a leading indicator of company health. Obviously these are particularly pertinent and may quash some concerns about current valuations for companies whose operations are in these locations. PMI numbers were softer last month but the impact on earnings we would suggest is likely to be negligible although going forward subsequently throughout the quarter this is worth monitoring.
- New highs on the S&P500 are logical anyway. The rating agency drops underperformers out of the index e.g. in the last fortnight it has shifted out materials stock CLF.
- US employment numbers suggest that companies remain cautious but are still employing. Last non-farm payrolls was a positive number. Again logically, a sign of a fiscally improving outlook.
- There is strong evidence companies cash reserves are at relative highs to accommodate any economic weakness. Not only is this a key number in analysts assessment of published results but is likely to support spending going forward as companies reveal their projected plans.
To be balanced of course, the brutal selling in the technology sector is perhaps due to some reliance on more global and in particular Asian market where growth has been softer. However how much of this “softness” has already been priced in remains to be seen. At time of writing YHOO have just reported after the bell and after hours prices surged. One company’s results do not make a season but it was noteworthy nevertheless.
Possibly also with weaker base metals prices generally throughout the quarter, the materials are also a potential financial banana skin, though again of course prior to the bottoming of copper prices this sector has already taking a battering generally through the quarter compared to that of other sectors.
So, our bottom line, we do think the odds are stacked in favor of a positive earnings season, which if course should logically be supportive of share pricing at the levels they are now and perhaps sufficient to re-challenge previous highs (and we are planting our flag at in excess of 70% beating expectations). However, there are two things to bear in mind:
a. It doesn’t matter what we think in terms of an outlook.. thinking determines strategy not entry and exit (remember “trade what you see” with price and volume rule)
b. The markets response will of course NOT just be about the bottom line but forward projections also. With the current market twitchiness at these levels these will have to come in well for the current bull market to continue.
Bring on the numbers!
After earnings what next? , join us for your FREE “Q2 – The bull-bear tug o’ war reaches its end game.” quarterly outlook session on Sunday April 27th.
Where you will hear
- Our predictions for US and global equity markets this quarter.
- Which strategies may work and which to avoid (as they are likely to rip away huge chunks of your capital)
- The 5 things you MUST monitor this quarter to ensure you are at the front of the pack when things are likely to change
- Our predicted date for the next market correction and the catalyst that may drive it
- Where next for precious metals..(and this may surprise you)?
- And we will be revealing 4 stocks that are most likely to outperform the market between now and the end of June.
Whatever you trade this is ESSENTIAL information register at https://www2.gotomeeting.com/register/592419450
This is a simply service we offer to all those who have expressed an interest in what we do and is a NO SELL zone session.
Look forward to seeing you there.