Earnings v1.2012

by Jay Pestrichelli on April 11th, 2012

As earnings season kicks off there seems to be an air of volatility. The last 5 down days have given the bears what they’ve been waiting for since December and fear has been ever present. But where is this coming from? Is it really Spanish bond yields? Was the jobs report that disappointing? Are we talking about another double dip? We say no, no, no to all these.

This downturn started when the market was disappointed about the Fed’s meeting minutes giving a lower chance that a 3rd round of quantitative easing was in our future. And why was there a lower chance of QE3…because the market was showing consistent signs of recovery. Not the other way around.

My point is bad news was driving down the market and so was good news. This environment exists from time to time and regardless of what the speculators think, the trading is going to go in a singular direction. Recently that direction was down.

However, when earnings season comes, there’s a whole new set of tangible data points that lets the analysts re-crunch their P/E ratios and company financials. Typically this will trump whatever bias the market had beforehand and as we see Wednesday morning, a reversal of the market bias can play itself out.

After such a strong first quarter, there is going to be plenty of reasons on both sides of the coin to buy and sell. Be careful to let it impact your decision process. Go back to the Iron Rules and Know Your Risk metrics to keep these emotions out of the equation.

Slow as it may be, the US recovery is creating the best market to be in, but there will be bumps in the road. Don’t be surprised if this season’s earning data doesn’t live up to expectations of the market’s Q1 performance, but that doesn’t mean its time to jump ship and abandon your long-term investing plans.



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