Stock Market: Kowtow Before The Bears?

The earnings season, which is running for around 4 weeks, is turning out well. Through Friday morning, 406 companies in the S&P 500 have reported second quarter earnings results, 261 have beaten, 93 have missed and 52 have matched profit expectations, reports Barron`s (blogs.barrons.com). But, as always, there is a catch: Of the 73 companies that have released third quarter guidance, 51 have provided projections that were below analysts’ expectations, while 16 have exceeded expectations and 6 have met them. It seems that most of the companies are very skeptical for the near time future.

But what are these guidances really worth? No management has a silver ball, nobody knows the future. The companies don`t really know what their customers will do and how the markets will behave in this quarter and beyond. There are too many imponderabilities. The guidances are just guesses. The companies have to be cautious while making projections especially as news from the economic frontier is still sluggish. Maybe these managements were a bit too cautious in the face of the doom & gloom which dominates the headlines in the media.

I reckon that the skeptical guidances are a kowtow before the pessimistic zeitgeist. There is so much speculation about an alleged hard landing in China, a crash of the European Economies and a new recession in U.S.

But the skeptical guidances lowered the barriers companies will have to overcome when they deliver their Q3 earning numbers next October and November. I reckon that then we will get another strong earning season and a new push for the stock market.