Thursday, January 17, 2013

Earnings Season: Gloom and Doom, or Not?

Chris Burritt writes that this earnings season is shaping up to be, well, not so good:

Intel (INTC), the world�s largest semiconductor maker, is poised to report its biggest quarterly earnings drop in 3 1/2 years this week, based on analysts� estimates compiled by Bloomberg. General Electric (GE), the maker of jet engines and electrical generation equipment, may post its slowest profit growth in three quarters.

The results would contribute to a predicted 2.5 percent increase in fourth-quarter earnings for the Standard & Poor�s 500 Index (SPY), the second-worst showing since 2009. Without a bump from financial companies that have cut jobs, the gain would be lower at 0.4 percent.

Those are pretty poor figures — but how important are they?

We’ve seen other bits of good economic news recently, from car sales to consumer spending, and the unemployment picture is improving, albeit slowly.

My colleague Kopin Tan penned a smart piece in this week’s Barron’s in which he argues that even a poor earnings season won’t be enough to derail the stock market. He notes the broad nature of stocks’ recent climb (which I wrote about in more detail yesterday), relief over a clearer fiscal picture and the continuing aggression of central banks as reasons to think investors won’t baulk if quarterly earnings disappoint.

It’s not easy to say if the seemingly new-found confidence in stocks would survive a weak earnings season, but it’s at least worth realizing that bad results won’t necessarily mean a market drop.

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