The GAAP PE of the market may be nearly 24, meaning on a non-adjusted basis stocks have, with perhaps the exception of the dot com bubble, never been higher and S&P 500 earnings are now expected to plunge plunge 9.6% – the biggest quarterly collapse since Q1 2009 – but for the mainstream media this is great news. Reuters “explains.”
Reuters “explains“:
When Wall Street’s quarterly earnings season kicks in to high gear next week, hundreds of companies will vie for the bragging rights that come from “beating the Street” – showing revenues and profits that are higher than analysts expected.
That hurdle may be unusually easy to clear this quarter, as analysts, who saw oil prices and stocks collapse at the start of the year, went really negative on the first quarter of 2016.
While the majority of companies typically beat forecasts, the bar for positive surprises may be even lower this time around, with analysts expecting profits of S&P 500 companies to be down 7.4 percent from a year ago, according to Thomson Reuters data.
With a handful of early reports coming in well above expectations and some evidence of stability in two company-hurting trends – falling oil prices and a rising dollar – some strategists are predicting enough positive news in an otherwise negative earnings season to boost stocks at least in the short term. In order words: First quarter earnings will be bad, but maybe not that bad.
“For right now there’s more of a chance of a positive surprise than a negative surprise in earnings, and to the extent that positive surprises are generated, that creates buying,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
In fact, the worse the earnings and associated expectations, the better the logic goes.
The one thing that is not mentioned is that as earnings expectations collapsed, stocks never followed. Instead, what they did was frontrun precisely the effect Reuters is trying to explain.
The other thing that is not mentioned is how the market managed to stage such a dramatic disconnect from earnings reality. The answer: central banks.
So there you have it. For those whose bullish stock “thesis” is that earnings will be a disaster, if perhaps less of a non-GAAP disaster than others expect, best of luck.
via Zero Hedge http://ift.tt/23loinH Tyler Durden