The final tally for the second-quarter earnings season is in, now that Wal-Mart Stores has reported its results. According to Bespoke Investment Group, 58.7 per cent of the 2,278 U.S. companies that reported between July 9 and Aug. 16 topped earnings expectations. That was the worst so-called "beat rate" since the stock market began to recover in March 2009.
As for the revenue beat rate, just 48.4 per cent of companies topped expectations, which was also the lowest rate during the recovery.
Bespoke's take? "While the actual results proved that investors were wise to expect a weak earnings season, stock prices have risen nicely since July. In our opinion, the ultimate barometer of a good or bad earnings season is how stocks performed, and in this regards, Q2 ended up being a pretty good one."
During the reporting season, the Russell 3000 index rose 4.2 per cent, the blue-chip Dow Jones industrial average rose 4 per cent and the benchmark S&P 500 rose 4.7 per cent. In the case of the S&P 500, that marks one of the best performances for the index during a quarterly earnings season over the past decade.
But were earnings really anything to celebrate? Bank of America's equity and quant strategist Savita Subramanian noted early in the week that net earnings for companies within the S&P 500 were on track to post gains of 6.6 per cent over last year, beating the consensus estimate. On the other hand, sales were about 1 per cent below the consensus estimate.
What's perhaps more important though, the second half of the year and even 2013 remains a slog-fest. Ms. Subramanian noted that analysts continue to cut their earnings estimates. Estimates for the third quarter are 4 per cent lower than they were at the start of the second-quarter earnings season; estimates for the fourth quarter are down 3 per cent.
Still, some technical analysts are encouraged by how the stock market has been behaving in recent months. Ron Meisels and David Tippin, from Phases & Cycles, noted that the S&P 500 has been tracing out a pattern of higher-highs and higher-lows since early June – meaning that the overall direction of the index has been upward, despite gyrations.
What's key, they believe, is how the S&P 500 behaves relative to its 200-day moving average. It rose above the 200-day moving average in early June – which is considered a bullish indication – and has remained there ever since.
"If major market indices can stay above their respective 200-day moving averages, there is a good chance to make a run to new highs for this bull market," they said in a note. "This market may have one or more surprises instore before it calls it quits."
David Berman