I’m a fundamental analyst. That means it all boils down to the numbers.
That’s why I love earnings season. Instead of the market focusing on irrational speculation, we get real information that can allow us to determine fair valuations.
This year, the speculation on the long side has essentially disappeared. The narrative has been entirely about a pending end to the bull market and a potential correction or even worse.
Where oh where did the glass-half-full investors go?
They are being overwhelmed by the naysayers, but that can change in a heartbeat. All it takes are stronger-than-expected numbers. A good earnings report is all it takes to eliminate the doubt.
The expectations for first-quarter earnings are not that high. In fact, earnings for the S&P 500 are poised to fall on a year-over-year basis.
And this is the environment that has the Federal Reserve on the verge of ending its bond-buying program? Something doesn’t jive.
The central bank is eliminating qualitative easing because it sees a strong and growing-stronger economy. A stronger economy equates to stronger earnings.
Thus far we really are not seeing that strength in earnings. Aside from stock buybacks, expense reductions and other ways companies can gin the numbers, the proof must now come in the pudding.
There is much riding on this quarter’s earnings season. If the numbers are poor, we could see a real problem in the market.
If they are strong, as I expect, we may finally break out of this tight trading range. All market participants and observers are on pins and needles for sure, waiting for the results.
Here are three specific elements I would like to see emerge this earnings season — in support of higher stock prices this year: