Tuesday, January 19, 2016

Stock Market: Earnings Season Q4 2015 - Refuting The Skeptics?

(Drivebycuriosity) - The earnings season is gaining speed. More and more 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", claims MarketWatch ( marketwatch). Really?

The results so far are refuting the skeptics. The majority of the big bank already reported in the recent days: JP Morgan, Citigroup,  Bank of America, Morgan Stanley, Wells Fargo & PNC Financial.  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 (finance.yahoo). It seems that the banks could manage the impact of the steep drop in prices for oil and other commodities on their loans better than feared.

The technology sector had also an encouraging start: Last week the chip giant Intel beat earnings & revenue expectations, today IBM repeated this feat and  Netflix reported a profit of 7 cents per share, more than triple of the analyst´s expectation (just 2 cents.)

There also was a report from a leading commodity company: Alcoa. The aluminum bellwether delivered more profit than expected, even that the revenues dropped more than feared,thanks to the tumbling metal prices.

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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