Earnings Surprise

Last week, when the market was celebrating Dow 10,000, I noted that the market’s direction would be driven by the 3^rd quarter earnings reports. The market is higher because the earnings season is turning out to be pretty strong. Of the S&P 500 companies reporting so far, 78% have reported earnings that have exceeded the street’s estimates while only 14% have disappointed. In aggregate, S&P 500 earnings are 17.8% higher than expected. That’s pretty good! And importantly, there is great diversity in the types of companies beating the street. JP Morgan, Goldman Sachs, Caterpillar, McDonalds, Apple, Texas Instruments, Freeport McMoran, Coca-Cola, Honeywell and Whirlpool have all reported terrific earnings. Last night, J. Crew, the clothing retailer, had blow out earnings and significantly raise its guidance for the Christmas selling season. This morning, Microsoft has a large earnings surprise and the stock is indicated 10% higher at the open. This broad diversity of positive earnings stories suggests the economy is improving across multiple fronts.

 

The doomsayers continue to say the market has come too far, too fast. But maybe it is the doomsayers that are the problem. At this time last year, the markets were in major crisis and it was easy to be a doomsayer. But perhaps the doomsayers overstayed their welcome. Although the market bottomed on March 6^th, plenty of folks continue to call for the end of the world. The economy appears to be slowly recovering as the strong earnings season indicates. Instead of the markets coming back to the doomsayers, maybe the doomsayers should adjust their pessimistic forecasts and catch up with the markets!