Sensible Investing

Earnings Season Update

April 24, 2009

The earnings season is in full swing; about half the companies issued their reports.  On the absolute scale, the results are quite terrible, as expected; however, in comparison to expectations they can be called respectable.   More importantly, forward earnings guidance, when provided, are also better than expected.  Here are some examples of positive surprises for selected companies from various industries:

- Banks and financials: Wells Fargo, Goldman Sachs, Bank of America
- Technology companies: Intel, EBay, Amazon, Netflix, IBM, Apple
- Restaurants: P.F. Chang, Chipotle Mexican Grill
- Retailers: J.C. Penney, TJX, Wal-Mart

There also a number of encouraging signs in overall economy and the state of the markets, such as:

- Successful IPO of Rosetta Stone and acquisition of Sun Microsystems by Oracle point to increasing confidence of investors.
- Seven banks have already paid back their TARP money.
- Increasing sales activity in real estate; some markets in California experience multiple offers again (albeit at much lower prices).
- The tone of media reports is changing.  While a typical news story a few months ago would describe how newly unemployed make ends meet, now we are seeing discussions of how to prepare for a coming recovery.
- Consumer confidence is up (although still rather low on absolute scale).  While this measure is psychological, it is clear that consumer optimism at some point will translate into consumer spending.
- This last point is corroborated by anecdotal evidence from my flying club: it has become increasingly difficult to reserve a popular model, especially on weekends.  That wasn’t the case just several weeks ago.

Of course, this doesn’t mean that we have clear skies ahead.  There is still plenty of bad news to go around: unemployment is still rising, home sales are still dropping.  Economy is still contracting, although at a slower pace than before.  Nevertheless, the fact that we do have some positive news is encouraging — just a short time ago, vast majority of reports were negative.  In the months ahead, we are certain to hear of more disappointments.  However, emerging signs of future recovery listed above could indicate that we have already seen the lows of this bear market.

Entry Filed under: Market Conditions. .