The results are in and they’re spectacular not as bad as expected!
That’s the best way to describe this earnings season.
If you’re watching the headlines, all seems well.
So far 70 S&P 500 companies have reported earnings. A total of 47 have “beat” expectations.
However, there’s no real turnaround at all.
Average earnings for the S&P 500 should drop between 2% and 3% for the quarter.
The good news is that’s better than the expected 5.5% drop.
The bad news is still pretty bad.
This Could Crash Stocks Once And For All
This quarter’s earnings are set to market the sixth straight quarter of declines.
That’s right -- six consecutive quarters, each lower than the one before it.
If that were the official GDP number, it would mark an official depression.
Of course, the official GDP number is much more malleable.
Earnings, not so much.
That’s why this earnings season is a particularly bad one.
Worst of all, the jump in stocks makes the entire situation for investors even worse than it was before.
The chart below stock prices (green line) and earnings (blue line) shows the problem I’m talking about:
It’s one you’ve seen featured here before because it’s so important.
The gap between earnings and stock prices was unsustainable.
After the current rally, the gap’s grown even wider.
Now here’s the real bad news.
If you’ve been watching this earnings season, you’ve surely realized that no one is focusing on this quarter’s results right now.
They’re mostly weak, but still better than expected.
The executives are dressing them up a bit too by talking about the “the future.”
Things will turn around in the future they say. So buy stocks now, wait for earnings to catch up.
And that right there is where we see the real problem.
S&P Global Intelligence sees a sharp rebound in earnings coming soon. It sees earnings rising 2% next quarter. Then 8% in the quarter after that.
The didn’t have any good reasons. Just that it will get better.
Why would anyone buy that?
I don’t know.
The same fiscal and economic policies which haven’t worked in the U.S. or Europe for nine years and haven’t worked in Japan in 27 years aren’t going to suddenly start working in the next three to six months.
They hope. We reason. The latter always wins out eventually.