Stocks have help up quite well in recent days despite the
continued run of soft economic readings and lack of visibility
on the QE question. Expectations for second quarter GDP growth
coming out next week have been steadily coming down in recent days
and currently stand below 1.5%, with quite a few forecasts
significantly lower than that.
What seems to be keeping investors reassured is the second quarter
earnings season, which has turned out to be a lot less worrisome
than many suspected just a few days ago. Expectations had come down
sharply as this quarter's busy pre-announcement season painted a
dark picture for corporate earnings, particularly given all the
global growth questions swirling around. But the actual results
have turned out to be quite decent - not strong or good, but not
bad either. And that has to count as a positive in these otherwise
grim times.
Results from the 120 companies in the S&P 500 companies as of
this morning provide us with a good enough basis to draw the
preliminary conclusion that the second quarter earnings season may
not be materially different from what we saw in the last two
quarters.
Total earnings for these 120 companies are up 17% from the same
period last year, primarily due to strong results from the large
banks in general and
Bank of America
(
BAC
) in particular. This compares to 7.7% growth for these same
companies in the first quarter, when banks didn't have such easy
comparisons.
Approximately 67% of all companies are coming out with positive
earnings surprises, with a median surprise of 2.5%. These same
companies did a lot better in the first quarter, when 84% beat
expectations and the median surprise was 4.6%. Excluding Finance,
total earnings growth is a still respectable 4%, which compares to
6.4% in the first quarter.
And even though the reports thus far are weighted more towards
Finance, a couple of conclusions can be safely drawn from the
handful of bellwethers from other sectors that have reported.
First, the global slowdown is making it difficult for revenue gains
to come by. And second, the dollar strength is proving a key
headwind for companies that have substantial international
operations.
We have seen these two elements present in host of earnings
reports, ranging from
General Electric
(
GE
) this morning and
Microsoft
(
MSFT
) after the close on Thursday to
Intel
(
INTC
) and
IBM
(
IBM
) the other day.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
GENL ELECTRIC (GE): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis
Report
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