Three times a year the market says “I call”, and companies need to reveal their hands. At this time of year there is a long line of CEO’s holding their annual conference calls to announce how things have gone over the last three months and to give forward guidance. This week will see the largest percentage of quarterly reports of the season. Thus far, 30% of the S&P 500 companies have reported: 62% have beaten on top line revenues and 87% have beaten on bottom line earnings per share; with economic-sensitive sectors showing the best revenue growth so far. The energy, materials and industrial sectors have shown revenue growth of 100%, 86% and 68% over the same quarter of 2009. These are the areas of the economy that have most been helped by the declining dollar and surging emerging market demand for commodities and industrial equipment.
Strategists and analysts get real busy this time of year. To be fair, they have very difficult jobs. They need to sift through all the numbers and issue advice for investors in this volatile market environment. One thing I have heard a lot is that the market can’t do well if financials don’t lead the market higher. Surely, we would like to see the financial sector do well. It would be great if the credit markets functioned perfectly and all credit worthy borrowers were helped. In the meantime, the actions of the mortgage market aren’t going to stop farmers from buying seeds, fertilizer and tractors. With wheat, corn and cotton prices soaring farmers have money to spend and they are going to do all they can to take full advantage of this commodity bull market. Paperwork issues at bank mortgage departments are not going to stop shipments on our rail systems. The fact that it takes a few extra weeks or months to refinance a mortgage is not going to slow the global surge in demand for crude.
Another clear theme emerged in the quarterly earnings process last week. Powerful global brand names are continuing to perform well. Coca-Cola and McDonald’s are examples of names that delivered positive quarterly earnings with great forward guidance.
I read the latest thoughts from two of the smartest men in the industry this morning. The great technician Stan Weinstein said that the market’s intermediate and longer term trends are still positive while the shorter term trend is getting a little ragged. He sees any pullbacks as being orderly and controlled since better than 70% of the S&P 500 has attractive charts at this time. Art Cashin was a little more succinct this morning with this “Stay very, very nimble.” Since they have better than 100 years of market success behind them I am going to try to stay in sync with them.
