Market Commentary

Earnings Season

earnings report

With over 70% of the S&P500 companies reporting their third quarter earnings in October the market appears to unimpressed. In fact, more than the normal amount of those 70% that reported have beaten their estimates, and still the market does not care.

For those companies beating their estimate they are down more than one percent in the couple days following the announcement, while those that missed are down 2% or higher two days after the report. This only confirms that in the short run the stock market will do whatever it wants to. If it is in a correction mood, as we are this month, the market will fall. If it is in a bull market mood the earnings will be ignored and it will rise.

In the long run earnings matter. If you own a company that consistently grows its earnings the stock price will eventually rise. However, it is not a perfect synchronistic relationship. There can be years when the company sustains strong growth in sales and profit and the stock price does not move. Then it can pop up suddenly catching up with its underlying strength. The same tends not to be true when sales and earnings of a company fall. It seems investors will punish quickly but reward slowly.

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