After preparing for the worst, Wall Street received a pleasant surprise in the current earnings season. Instead of the start of a slump in earnings, corporate profits are now expected to be steady and to be slightly higher in the first three months of the year.
With the current earnings reporting period, earnings estimates were reduced from 5% positive growth on January 1st to 3% negative in the earnings period. “That’s the sharpest cut that we’ve seen since the first quarter of 2009, which obviously was a very different economic environment than what we’re in now,” Wall Street economists said.
More than a third of the S & P 500 companies have reported their earnings so far. Of these companies, 78% exceeded earnings estimates while 56% exceeded sales forecasts.
“We’ve seen technology companies as well as consumer staples companies and communication services companies, their numbers have been coming in the best so far. You’re seeing the biggest moves there.” analysts said.
They added that superior performance in staples stocks is particularly positive for the rest of the market. 86% of the companies reporting so far had better-than-expected results for the end result. Analysts pointed out that the top line is in very good condition.
The staples companies are actually able to pass price increases to the consumer, which is a great thing for the consumer. According to analysts, consumers are “still feeling very strong in the wake of commodity prices rising, transportation costs rising,”
Even with the surprise of the first quarter, management teams and Wall Street analysts seem to have underestimated their estimate for the second quarter as well.
“The numbers keep coming down. You saw Q2 estimates cut sharply over the last three or four months, but as earnings season has started, the numbers have been cut in half again from about an increase of 0.3% to half of that now”, analysts declared. “What that says about the market right now is that there’s still a lot of caution out there between management teams, between Wall Street analysts. No one is certain that we’ve cleared the bar just yet.”
Analysts expect second quarter profits to be much better than the expected increase of 0.15%. Their forecast for earnings growth is 3% to 4% for the S & P 500 between April and June.
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