This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Kass: Putting Earnings Into Perspective

This blog post originally appeared on RealMoney Silver on June 1 at 7:26 a.m. EDT.

The ability of the U.S. stock market to continue its rally is dependent upon numerous factors, but, from my perch, the consumer holds the key.

The bearish consumer case is no longer a variant view and, as such, might be incorporated in today's share prices. It is now a widely held consensus that the consumer will be a drag on economic growth as the great debt unwind yields lower personal consumption expenditures and an elevated personal savings rate.

As well, most bearish observers hold to the notion that corporate profit margins, which, in 2006-2007, reached the highest level since the mid 1950s, are now vulnerable to mean-reversion in the years ahead. After all, the prospects for tepid top-line growth and continued cost pressures (importantly influenced by the costly burden of more regulation and the inevitability of higher corporate tax rates) seemed to point to obvious contraction.

The context of first-quarter 2009 corporate profits was telling.

Remarkably (and not well-recognized), is that over 60% of the companies in the S&P 500 missed the first-quarter consensus sales forecasts (year over year and sequentially), but, even more surprising, two-thirds of the companies beat consensus earnings expectations as aggressive cost-cutting (especially of a job cut kind) ruled the day.

While half a loaf of bread is better than no bread at all, we are left with two outcomes to consider.

The positive outcome is that when fiscal and monetary policies really kick in and aggregate demand turns, corporate profit operating leverage will result in surprisingly strong earnings.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%
YHOO $45.10 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs