Summer Earnings Season: Few Blockbusters Expected
By Hal M. Bundrick
NEW YORK (
)--The earnings season just underway may be much like this year's summer Hollywood movie bill: few if any blockbuster winners and more Lone Ranger offerings: tepid, formulaic and bearing few surprises.
"At this point in an economic cycle earnings typically slow down or at least moderate," says Scott Wren, senior equity strategist for Wells Fargo Advisors. "The economy is no longer climbing out of the recessionary hole, so year-over-year comparisons are not nearly as dramatic as they were early in the recovery. The probability of the actual overall results deviating from expectations in a meaningful way are quite small, at least in this strategist's opinion. That leaves little to get excited about."
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Wren joins other Wall Street analysts expecting a lukewarm earnings season. He says the economy continues to grow at only a modest pace, with the lackluster revenues seen last quarter producing a sequel for this summer's lineup.
"Top line growth was the main topic of conversation during the first quarter and should garner most of the attention during this reporting season," Wren says. "Our expectations have been for revenues to improve somewhat as Europe stabilizes and emerging market economies get back on track over the next 12 months. Given that, rest assured that revenues will not be a source of fireworks any time soon."
Wren notes that earnings are a lagging indicator, telling investors only what happened in the past and frequently rendering little indication of what might happen in the future.
"CEOs will offer an outlook but their crystal ball is often just as clouded as anyone else's," he says. "And you can bet that few, if any, publically traded companies will come out and offer wildly optimistic outlooks in this day and age. Not only is the economic future difficult to decipher for most companies but the potential legal implications of falling short of overly optimistic projections are always in the back of most CEO's minds."
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Wren expects earnings growth to be in the low-to-mid single-digit percentage range on a year-over-year basis. The major stock indices may react to any surprises offered by individual company results for a day or maybe two he says, but the longer lasting effects on the market will likely come from macro issues, such as improvement in the labor market, improving consumer and business confidence or better news out of emerging market economies.
"So don't expect a big surprise one way or the other this earnings season," Wren concludes. "The stock market may take it as a mild positive if earnings marginally exceed expectations but with investors already having correctly anticipated improvements in the economy, housing and the labor market, momentum to the upside was established long ago. My feeling toward the upcoming second quarter earnings season is tell me something I don't already know and I might get excited. Otherwise, move along."
--Written by Hal M. Bundrick
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