Stock Market: A Disaster For Pessimists

The current earnings season is a disaster for the pessimists. Bloomberg reports that 82% of the companies which reported their profits from the first quarter of 2012 have so far beaten the average expectations of the analysts (bloomberg). Earnings rose 11% on average, exceeding the 0.6% increase analysts projected when reporting began, adds Bloomberg (bloomberg).

The high beat rate has 2 reasons:

1. The majority of the Analysts was way too pessimistic. Weeks before the start of the earnings season they followed the gloomy zeitgeist and lowered the bar (their earning predictions) too far, mainly because of the weakness in Europe (bespokeinvest.com).

2. The solid profit growth rate proves that companies can raise their earnings significantly even in a sluggish global economy. This is the result of a continuing learning process which raises the efficiency of companies and boosts productivity. Part of this is  technological progress, including computers, chips, the internet and other software applications which allow the companies to keep the growth of their costs below the growth rate of their revenues.

Both, the pessimism of the analysts and the rising productivity, create buying opportunities and will fuel further gains on the stock market in the coming months.