The Earnings Season “Report Card”

Apr 2012

Well its tax day and I bet you thought I would be writing about tax tips! No, not today; if you haven’t filed your tax return yet and you are reading this article, I hope you have filed your extension along with a check for the taxes you think you will owe and can breathe a sigh of relief, as you have six more months to finish your return – good luck!

Earnings season for the 1st quarter officially started last week, when Alcoa reported earnings after Tuesday’s closing bell. Alcoa beat estimates and forecasted that global aluminum demand would grow 7% this year – a positive! Then, search giant Google surprised the markets when they announced a special token dividend that was essentially a two-for-one stock split – another positive. Surprises to the upside during earnings season usually are a positive for the markets.

Basically earnings season represents the report card for many companies on how they did for the quarter. It becomes a time of uncertainty for the markets, and as we know, the markets dislike uncertainty. We tend to focus our attention to the big companies of each sector, like Alcoa and Google mentioned above (let’s not forget the behemoth Apple in the tech sector as well!), and bank and energy giants, JP Morgan and Exxon Mobil. If they do well or beat the infamous analyst’s estimates then the markets will be rewarded in the short term. Beating the estimates during this time is not the only thing investors are looking at; we also focus our attention to their projections for the rest of the year.

It’s funny how a tiny bit of positive (and negative) news changes market perception so quickly. While we tend to rely on the analysts expertise, some experts don’t give much credence to earnings season as to what the markets will do. I was listening to a poplar finance show that had Jeremy Siegel on regarding the market outlook. Mr. Siegel is a Wharton finance professor and is regarded highly in the financial field. He stated that he believes that stocks are about the most relative cheapness that he has seen since the 1950’s! He also predicted that the Dow Jones has a 50 percent chance of hitting 17,000 by the end of next year and a 75% chance of hitting 15,000! I hope he’s right. Another thing I found interesting when he was being interviewed was that he doesn’t think corporate profits play an important role in stock market returns. He actually said they were not necessary! He stated that “We don’t need corporate profits to grow for stocks to be great buys. Any growth in earnings is an extra bonus to the stock investment”.

Just remember, earnings season focuses on short term goals. If you are investing for the long-term, you shouldn’t be too concerned about the latest headlines, both good and bad during earnings season.

Another Season Has Arrived

Hey ladies – the 2012 golf season is beginning. If you’ve got the golf bug already like me (even though my handicap is quite high) I’ve already been out a couple of times this spring! If any of you have been thinking about taking up the sport, now is a great time to check out the golf courses and facilities near you to take a lesson or two. Many courses offer great deals on clinics for women to learn the game or just to brush up on your skills – good luck and have some fun!


More News