Earnings Season Update

We are in the middle of the fourth quarter earnings season, and so far the majority of companies are once again beating expectations.  Bellwether companies, such as Intel, Apple and Google have issued blowout reports.  Market reaction to this, however, has been muted.

While there are special circumstances in cases of the companies mentioned above — Intel’s future is now less certain (see my writeup on Nvidia), and there are top management changes at Apple and Google — when stock price fails to advance or starts declining despite stellar results, it always warrants caution.  The traders are also looking even for slight signs of disappointment, and punish the stock severely if they find them, as was the case for F5 Networks.

It is quite possible that we are nearing a short-term market peak here, which would not be all that surprising giving a 7 week winning streak for S&P 500 which is now near its two and a half year high.  A moderate pullback from these levels would actually be quite healthy — if the markets continue their march higher, a sharper correction will likely result in the future.

Short term worries aside, fundamentals of the market remain solid.  Company earnings continue to grow and exceed expectations.  Benjamin Graham said, “In the short-term, stocks are a voting machine and in the long-term, stocks are a weighing machine”.  And it is the earnings that are those weights.