U.S. earnings get a big yawn on Wall St

NEW YORK Fri Jan 29, 2010 6:30pm EST

NEW YORK (Reuters) - Fourth-quarter U.S. corporate earnings have proven to be stronger than expected, and yet stock investors have greeted them with a big yawn.

Second-quarter and third-quarter earnings drove stocks higher last year, helping the benchmark Standard & Poor's 500 index finish the year with strong gains.

But with the market about halfway through the latest reporting period, company results have sparked little upside as some investors see no justification to push stocks higher after the market rallied more 70 percent from its early March lows, analysts said.

"A lot of positive expectations had been built into stock prices going into the earnings, so even though there were some upside surprises with raised guidances, in a lot of cases that had already been built into stocks' prices," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

On Friday, stocks registered a third week of losses, and the S&P 500 finished its worst month since February 2009, even though more than two thirds of companies that have already reported fourth-quarter results have beat expectations.

If stock prices already reflect higher fourth-quarter profits, investors may be unwilling to push prices further, the analysts said.

The theory could be tested next week as Dow Chemical, Pfizer, Yum Brands and about 90 other S&P 500 companies are due to report results.

Even though many individual companies have reported solid results, including Microsoft and Amazon late Thursday, their stock prices have fallen in the next trading session. Microsoft dropped 3.4 percent to end at $28.18 on Friday while Amazon dipped 0.5 percent to $125.41.

On January 19, International Business Machines raised its outlook and reported a stronger-than-expected profit, but its stock price, which had already rallied 60 percent in the past year, fell.

"Looking at all companies that have reported, the average stock has declined 0.09 percent on its report day," analysts at Bespoke Investment Group said in a research note.

Companies missing estimates are seeing their stocks punished more than companies beating estimates are seeing their stocks rewarded, they found.

"There (may be) worries the consensus forecast for the economy and for corporate profits is too high," said Hugh Johnson, chief investment officer of Johnson Illington Advisors, in Albany, New York.

Last week, fears the White House's plan to curb bank risk-taking would cut profits rattled investors, along with China's efforts to prevent the world's third-largest economy from overheating.

Still, S&P 500 fourth-quarter earnings are seen up 206 percent from a year ago, when corporate profits were hit hard by the economic downturn, according to Thomson Reuters. That percentage is up from 193 percent last week.

Of the 220 S&P companies that have already reported, some 78 percent have beaten earnings estimates, while 8 percent have matched estimates and 14 percent have missed targets, according to Thomson Reuters' director of U.S. earnings, John Butters.

The percentage topping estimates is well above the 61 percent average since Thomson Reuters began collecting data in 1994.

Revenue results have also been strong, with 67 percent of companies beating estimates, and the fourth quarter is expected to be the first period of positive revenue for the S&P 500 since the third quarter of 2008.

"These are really good earnings, and the question is what's happening to the market," Johnson said.

(Editing by Leslie Adler)

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Comments (4)
PropTrader55 wrote:
Being a Proprietary trader for the past 10 years we really don’t even look at earnings anymore as the stock price barely correlates to what happens when the opening bell rings. Lately if a company has good earnings the stock falls, If the company reports bad earnings the stock goes up, go figure! I believe earnings is the last thing on a traders or investors mind right now. Most of us day traders on http://www.tradersterminal.com are only concerned with what is happening right “now”. Earnings come and go and in these economic hard times I think we need to focus more on the unemployment rate and getting more jobs back on the street. Earnings…lol please

Feb 02, 2010 9:23am EST  --  Report as abuse
ayuda wrote:
Wallstreet and Banks should work their ass off to restore that consumer confidence in the market. And also the Chinese investment firms arms would have been twisted hard by now by the Chines gov to pressurise the Presidents meeting with the Tibet Dali-Lama.

Feb 02, 2010 10:20am EST  --  Report as abuse
paintcan wrote:
Wall street investors can’t restore confidence in the market because the traders don’t have any. A relative, who has been trading for years as a day trader and as a long term investor, never ceases to complain to me about how erratic, how illogical and especially how the system has become the stalking ground of the predators looking for their prey.

Some of the practices and the derivatives he describes to me sound like the banks and investment houses are not above selling the Brooklyn Bridge – everyone knows that trick, but not the derivative of that idea – they sell the bets on the traffic going over it instead.

All those “investors” who are too smart to buy the bridge aren’t too smart for the derivative.

There is no way in hell that anyone should put confidence in the street when it is obvious that the day traders are too worried about the present moment. That is not conducive the forward thinking. Only to reacting to crisis after crisis. The masters of the US and world economy can’t plan for the future because they can’t reliably see beyond the present moment.

China has a big advantage with its heavily socialized economy and central planning. They can think way ahead and can put resources where they think the greatest benefit overall can be achieved. That is not true of the very short sighted bunch on Wall Street. I have had to listen to the financial channel when visiting that relative and it almost makes me laugh. They are anything but sober and clear sighted managers of the nations wealth. If they deserve any title at all – it is the “masters of marketainment”. The financial channel also appears to be shot through with conflicts of interest. They make no attempts at disclaimers that the so called pundits are not investors in the stocks they push.

The article might as well call for gamblers in Las Vegas or Atlantic City to put their confidence in the slot machines and the black jack tables.

They won’t be able to “work their asses off” to restore confidence because one can’t restore confidence in a confidence game. Not unless everyone gets stupid again.

Feb 02, 2010 11:44am EST  --  Report as abuse
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