Earnings season is coming

Following an extended period of pessimism on Wall Street, April’s corporate earnings season beget rabid green shoot sightings. The market responded by moving higher as investors armed themselves with previously shunned equities, waiting to move in for the kill once these green shoots turned into growing profits.

First-quarter profits beat expectations, but were still down from a year earlier. Nobody expects earnings recovered during the second quarter, thus all eyes will be focused on guidance into the second half of 2009. With a second-half recovery largely priced into the market, the Street must be reassured profits are on the horizon.

At some point, however, the market will need more than a chorus “less bad” or “slowing rate of decline” to justify any move higher from here. This article in today's Wall Street Journal suggests stocks have entered “a Twilight Zone of uncertainty that leaves them vulnerable to earnings disappointments as they wait for earnings to recover.”

Once corporate earnings do recover, they will look impressive when compared to the prior year’s ruinous results. Of course, the best of the hunting season will be long over by the time this occurs because the market is forward-looking.
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Peter J. Lazaroff