Tag Archives for " earnings season "
Earnings Season Review: When Not That Awful Is Good Enough
FactSet just updated their second-quarter earnings season stats for S&P 500 companies so let’s take a look at just how awful things are: -69% of companies are beating earnings estimates (vs. 5-year average of 67%) -54% of companies are beating sales estimates (vs. 5-year average of 55%) -Q2 earnings have declined -3.5%, which is less awful than the -5.5% estimated as of June 30. -Health care and tech have had the highest percentage of companies reporting earnings beats So the same trend that’s persisted for several quarters is still in place — earnings are nothing to write home about. But they are just a little better than expected, so investors are holding their noses and buying. Or maybe they’re just fooled by central banks drenching the market in monetary perfume? However, Q2 will go down as the fifth straight quarter of earnings declines, something we haven’t seen since the 2008-2009 crisis. I accept the market for what it is, and I always roll my eyes are melodramatic bear cases because they always omit the most important variable — WHEN. It does feel somewhat “wrong” for SPX earnings to be so weak while the index is regularly making new all-time highs. That’s creating stretched valuations. Aside from Telecom Services, all services have forward P/E’s is above 5 and 10-year averages: But consider the flip side. Stock prices are a current representation of the perception future earnings and cash flows. Pretty soon, companies will be facing weak comps, so stocks could simply be discounting a return to normalish growth. Maybe that’s simplistic thinking, but complex thinking has gotten the permabears absolutely nowhere.
Continue Reading -->Earnings Season Stinks… Just Not As Much As We Thought
We came into earnings season with remarkably low expectations. But it turns out things don’t stink that much. FactSet just updated their earnings season stats, and as of Friday, things stink — just not as much as they were expected to. At the end of Q2, traders expected a revenue decline of -0.8%. And as of last week, actual results have dragged that number up to +0.1%. 57% of companies have beaten revenue forecasts, which is slightly above the 55% 5-year average. Consumer discretionary (namely AMZN), Tech (think AAPL), Health Care, and Financials have been leading the way The earnings side is looking decent too. Q2 is showing a -3.7% earnings decline. Now that’s pretty bad on its head, but at the end of Q2, analysts expected a -5.5% decline. The conclusion: once again, earnings season stinks… just not as much as we thought. And remember, these numbers don’t reflect today’s solid earnings reports from Pfizer (PFE), CVS (CVS), and others. This is another reason the market’s falling apart. Everyone’s been bracing for disaster and we’re clearly not getting it. And of course, it helps that economic data has been generally decent. Disclosure: Position in AAPL
Continue Reading -->Morning Preview: Is the Sideways Grind Beginning?
The S&P 500 is coming off 5 all-time highs in 5 days, but we may be in for a sideways grind. On Friday, I wrote that the market was ‘feeling’ stretched but sentiment was mixed, which is typically a recipe for a whole lotta nothing in terms of action. I would not be surpised to see the market stay range-bound, similar to what we saw in the April-May snoozefest. Earnings are giving traders an excuse to take profits. We started off Q2 earnings season on high notes from Alcoa (AA) and JP Morgan, but we ended the week with unimpressive earnings numbers from names like Wells Fargo (WFC), Citigroup (C), and Swatch. I’d watch to see how Bank of America (BAC) gets treated this morning. It beat EPS estimates, but it’s up only fractionally in the early going. We also saw a miss an earnings this morning from transportation name JB Hunt (JBHT). European markets are down slightly today following the failed coup attempt in Turkey, though safety assets like gold, the yen, and US Treasuries are selling off. On the deal front, SoftBank of buying ARM Holdings (ARMH) for $32 billion, or a ARM is a chip designer that licenses its IP portfolio to virtually all mobile device makers. The SMH ETF is up about 1.4% in premarket trading. ARMH comprises 4.7% of SMH. ARMH is up 43% this morning, which is going to burn all the bears that sent its short interest to 6-year highs. SPX futures are modestly positive this morning, but well off pre-market highs. Again, how Bank of America gets treated will probably be a tell. We don’t have any market-moving economic data reports on tap. Now, even though I think the market’s likely to go sideways for a bit, I suspect we’re going to see a strong increase in the VIX within the next week or two. Remember what the VIX is — the market’s expectations of 30-day volatility, as measured by SPX options. And right now, the VIX curve is extremely steep and trading at a massive discount to realized volatility. These imply that traders are pricing in no movement. At the first bump in the road, even if the market ends up going nowhere, I suspect the VIX will rise sharply as traders reprice options more in-line with historical norms. This also means that options are cheap now — so if you’ve got a serious long or short directional bias, take a look at options instead of stocks. The game plan remains the same: watch biotech (IBB), oil, and high-yield (HYG) to measure risk appetites as they tend to be the tells. Good luck out there.
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