Forgive me for harping on the “earnings recession” fears that have hung over the market for some time, but it pays to remember just how concerned most investors were 12-18 months ago. Now, however, this one-time bogeyman is in the process of likely resolving itself and fading away. That has implications for the bull market. (See Signal From Noise, Market to Focus on SPX EPS Growth after 4Q19 EPS Season, Jan. 15.)
I say this for a couple of reasons. Acknowledging right away that the fourth quarter 2019 results currently emerging are just a small sample of the entire Standard & Poor’s 500 index (SPX) companies yet to report, they are already better than forecasts.
Moreover, the better numbers are coming from important companies. As results continue to exceed the “EPS recession” analyst forecasts, I believe it will be enough to shrink equity risk premium, and create market upside.
O.K. Last week, the earnings seasons kicked off and for the 32 S&P 500 index companies that have reported thus far, 78% are beating and the average beat has been 2.4%. This is strong relative to both analyst and investor diminished expectations of down 1.5%.I expect SPX companies to continue to mostly deliver results above lowered expectations, striking a generally positive tone...