Wednesday, January 27, 2016

Stock Market: The Earnings Season - Defying The Skeptics

(Drivebycuriosity) - It seems that the current earnings season was the most feared in the recent years. Companies are reporting their financial statements for Q4 2015. Media and analysts predicted "dismal earnings reports" and claimed that the profits of the leading US companies (S&P 500) dropped in Q4. "Woeful earnings threaten to intensify stock-market bloodbath", claimed MarketWatch (marketwatch).

The results so far are refuting the skeptics. All the big banks could disprove the gloomy predictions: JP Morgan, Citigroup,  Bank of America, Morgan Stanley, Goldman Sachs, Wells Fargo & PNC Financial, Bank of New York Mellon, Capital One.  They all beat the analysts`earnings expectations. JP Morgan declared that its fourth-quarter profits rose 9 percent from a year earlier, helped by a strong performance in its consumer banking division and lower legal expenses (  The banks  managed the impacts of the steep drop in prices for oil and other commodities on their loan portfolios better than feared, helped by a solid consumer business.  Other financial companies also surprised positively: American Express beat expectations for earnings & revenue and the insurance holding companies Traverlers delivered an earnings beat as well.

The technology sector started also encouragingly: The bellwethers Intel & IBM both beat earnings & revenue expectations and  Netflix reported a profit of 7 cents per share, more than triple of the analyst´s expectation (just 2 cents.) The cable & mobile provider Verizon joined the club of companies which beat earnings & revenue expectations. Apple reported slowing revenues and iPhone sales, but earnings rose to $3.28 (plus 7%) - 5 cents more than expected.

The consumer companies joined, they belong to the winners of collapsing oil and other commodity prices because the consumers worldwide have more moeny to spend. McDonald's beat earnings and revenue expecdations, Procter & Gamble, Starbucks, the homebuilder D.R.Horton and the pharmacy firm Johnson & Johnson also earned more than expected

Profit & revenue at the biotech company Biogen & and at Boeing  beat expectations. The chemical giant DuPont, the defence & aerospace company General Dynmics & the conglomerates 3M and  General Electric all  earned more than expected as well.

There were already some reports from the battered commodities sector: The aluminum bellwether Alcoa delivered more profit than expected, even that the revenues dropped more than feared, thanks to the tumbling metal prices. The oilfield-services-companies Schlumperger & Halliburton also earned more (lossed less) than expected (feared). U.S. Steel reported a loss of 23 cents a share, topping estimates for a loss of 85 cents a share (barrons).

The earning season showed also a clear winner of the oil price collapse. Delta Airlines boosted their earnings 51% from a year earlier, thanks to the falling costs of fuel (businessinsider). According to Business Insider the airline saved $5.1 billion fuel costs last year, thanks to the oil price crash.

Many companies benefit from lower transport costs and from cheaper oil, steel, aluminum and other commodities which reduce their costs significantly. The pessimistic majority also underestimates how efficiency gains and technological progress enable companies to create rising earnings even in a sluggish economy. Companies are learning organisms. They are managed by humans who are getting better and better over time by continuously improving themselves and their companies.

I believe that the positive earnings surprises will continue in the coming days and may lift the sentiment and so the whole stock market.   

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