FYI | May 20 2010
By Greg Peel
US earnings report seasons are very drawn-out affairs, lasting several weeks and occurring every quarter. In Australia, most companies report only twice a year (albeit updates are often provided in between) and we get those over with pretty quickly.
Alcoa's result is always seen as the unofficial beginning of the earnings season, and that was back on April 13. The first week of earnings results was a solid one over all, and at that stage Wall Street was happy to believe the Greek situation was under control. Fast-forward to now, and things are a lot different.
There have been several factors weighing on Wall Street in the interim, including the Goldman Sachs case and financial regulatory reform proposals, but none have been as critical as the European crisis. That crisis has weighed on all global markets, and so much so that the ongoing US reporting season has been all but forgotten. But Macquarie Private Wealth is happy to report that the season is ending the same way it began – very positively.
458 of the S&P 500 index companies, or 96% by market cap, had reported by yesterday. The result has been that 281 companies have beat analysts' consensus earnings forecasts by more than 5% while only 48 have disappointed by more than 5%, Macquarie notes. On average, results have beaten expectation by 16.1%.
The magnitude and breadth of earnings surprises is testament to the strength of the US economic recovery currently underway, the analysts suggest, which is also reflected in recent US economic data. Macquarie believes consensus estimates going forward are also still too bearish.
With the euro collapsing it's not hard to see why the US dollar index has risen substantially this past month, although one must consider that if Europe had been steady, the dollar should still have been somewhat stronger on economic and corporate fundamentals.
This is good news in a market which is currently weighed down by fearful sentiment.
