First quarter earnings season for publicly traded companies is finally drawing to a close.Overall results have largely exceeded what analysts expected.
For the S&P 500 stock index as a whole, more than two-thirds of reporting companies have beaten analysts’ expectations, somewhat better than the 63% that managed that feat last quarter.
Even more important, this earnings season appears to have marked a key inflection point for most business sectors.For the past year, Wall Street analysts have been consistently cutting their earnings estimates; in other words, analysts have been becoming progressively more negative about earnings prospects for US companies.
But this quarter is a different story. For all 10 official US economic (business) sectors, earnings estimates are now higher than they were going into the first quarter’s earnings season.Many analysts appear to have cut estimates too far and are now revising their numbers to the upside.
In some cases, this shift is dramatic. For example, between the end of July 2008 and the end of Dec. 2008, 2009 earnings estimates for energy stocks plummeted roughly 75%.But over the past few weeks, as these firms reported 1st quarter numbers, estimates have begun to tick higher. This has helped push the stock market up.
This doesn’t mean there won’t be a temporary pullback or correction in the broader stock market.Such a pause would be normal after the tremendous rally since early March.But the positive tone to 1st quarter earnings season is yet another sign that the global economic outlook is becoming brighter.
The shift in earning sentiment also offers further fundamental support for the recent run-up in stocks.
