NEW YORK ( ETF Expert) -- On a quarterly basis, 61% of companies tend to beat top-line revenue numbers. However, corporations are only beating expectations by a paltry 39% for the first quarter.
The revenue shortfall is not hard to explain. Multinational corporations are struggling to generate sales due to a slowdown in global growth, particularly in Europe and China. The modest achievement in earnings is not particularly difficult to explain either. Bottom-line profit can be achieved by cutting costs, increasing worker responsibilities and implementing successful tax strategies. On the other hand, executives are less able to sweep revenue data under the proverbial rug.
Bulls don't seem to be bothered by surging price-to-sales ratios or the associated questions concerning valuation. If central banks around the world are lowering target interest rates, or printing money to buy bonds to lower actual rates, they see the backstop as unconditionally positive for high-yielding assets and equities.
What's more, if a slight majority of companies are still beating profit expectations, where's the price-to-earnings fire?Bears are far less convinced. Simply stated, corporations will not ramp up their hiring if they don't have more sales to justify new employee acquisition. It follows that if genuine job growth remains elusive, consumers cut back on their spending, businesses hold on to their capital and even the recovering real estate sector might stall. Are the revenue "misses" contained to certain segments? Not really. The market has already seen top-line shrinkage from IBM (IBM), eBay (EBAY), AT&T (T), Procter & Gamble (PG), Wells Fargo (WFC), American Express (AXP), Dover (DOV) and dozens of other global participants. As it relates to exchange-traded fund investing, who will be correct in the weeks and months ahead? The bulls? Or the safe-haven seeking, long-bond buying bears? Perhaps ironically, neither camp may have an accurate grasp on what will happen going forward. The most likely scenario in the near-term? Stocks will pull back for any combination of reasons, though analysts will look backwards to explain the corrective activity. Profit-taking, revenue failure, euro-zone debt troubles, budget battles, seasonal patterns, deepening global recession, China manufacturing slowdown -- pick your venom. At that time, of course, we will hear from the high-profile bears who make investors feel that the world itself is imploding.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV