Some fans can’t wait for fall and football season. Some of you can’t wait for summer and baseball season. But we financials analysts get our fix every three months, usually the 4th week into the quarter. Hooray! Its earnings season – the time when a surge of public company earnings reports get published and analysts get to confirm how right, or wrong, their projections were.
CNBC is reporting the majority of corporate earnings reports, 76% thus far, are beating analyst forecasts since expectations were broadly for lower profits. Naturally, high earnings results have reinforced the positions of 1Q 2019 investors who bought in, but the consolidating market is starting to worry technical analysts who fear a buying-bubble and see signals of an overbought market and investors unprepared for anything less than perfection. Remember: the economy can be perfectly strong, but the market prices react (positively or negatively) based on changes from that presumed baseline.
For instance, China reported 1Q GDP growth of 6.4%, better than expected. Ironically, this organic strength ended up with a sharply negative trading day (-2.3%) for Chinese stocks because investors had been hoping for additional stimulus, which would have required lower GDP growth. In comparison, while the US economy is relatively strong right now (given the end of the government shutdown, healing retail environment, and recovering energy prices), markets have already priced in this Pollyanna-ish state of affairs.