Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19
Silver Is Cheap – And Getting Cheaper - 7th Oct 19
Stock Market Back to Neutral - 7th Oct 19
Free Market Capitalism: Laughably Predictable - 7th Oct 19
Four Fundamental Reasons to Buy Gold and Silver - 7th Oct 19
Gold and Silver Taking a Breather - 7th Oct 19
Check Engine Warning Light ECU Dealer Diagnostic Cost - Land Rover Discovery Sport - 6th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Will Earnings Reports Support the Stock Market Rally?

Stock-Markets / Stock Index Trading Oct 16, 2009 - 07:05 PM GMT

By: Sy_Harding


Best Financial Markets Analysis ArticleThe rally off the March low has been remarkable. The market plunged too far to its March low, on fears about the economy that had not been seen since the Great Depression. So a substantial rally off that low was to be expected.

Even so the rally has been unusual. A number of long-time successful money-managers have been warning since May and June that the rally was getting ahead of reality, factoring into stock prices a faster and larger economic recovery than will be experienced. Their evidence included that consumer spending, which accounts for 70% of the economy, cannot increase enough to make a difference for some time to come, citing consumer debt levels, high unemployment, increasing loan defaults and home foreclosures, etc., and that the banking industry still has problems ahead from rising home foreclosures and defaulting commercial loans.

Global hedge fund manager George Soros says “International economies will have some limited growth but the U.S. economy is going to be a drag on that global growth.” In April he said U.S. banks are “basically insolvent”, and apparently has not changed his mind, referring in remarks this week to the “bankrupt U.S. banking system”.

The Federal Reserve is no better than lukewarm on its hopes for economic recovery, expecting to have to keep interest rates low well into next year. Meanwhile, the Administration and Treasury Department are so concerned about the sustainability of the recovery that they are reportedly preparing yet another stimulus package.

However, there is nothing lukewarm about the confidence in the economic recovery being demonstrated in the market, its rally still barreling along at a blistering pace.

In June, in apparent agreement that the rally had gotten ahead of reality, the market began to roll over into a correction, and was down four straight weeks.

But the decline reversed on a dime in mid-July when 2nd quarter financial reports began coming in. The upside reversal actually began when respected bank analyst Meredith Whitney upgraded Goldman Sachs from neutral to buy the day before the bank issued its report.

That started the ball rolling.

Then, although most companies, including most of the major banks, reported continuing revenue and earnings declines, they were touted as positive signs of economic recovery if the declines were not as bad as Wall Street expected.

That assessment (that earnings were positive because they were coming in “better than expectations”) gave the rally substantial new legs, even as the warnings of a slow recovery, perhaps even an economic relapse, began to be substantiated when economic reports began to turn sour again. Home sales, and retail sales declined again after several months of improvement in the summer. Job losses rose again after several months of “less worse” job losses. And consumer confidence began declining again.

But the market remained focused on earnings and hopes for earnings. After the 2nd quarter earnings reporting period ended, the market began to anticipate the improvement in earnings Wall Street promised would show up in 3rd quarter reports. Wall Street was even optimistic enough to say it would no longer be enough for sales and earnings to be “less worse”, or for earnings improvements to be due to cost-cutting and lay-offs. If the positive economic outlook was to be sustained, rising revenues would have to show up in 3rd quarter reports as the reason for improved earnings.

The third quarter earnings reporting period has begun, and so far, unlike the beginning of the 2nd quarter earnings reports, it’s been a mixed picture.

Bank analyst Meredith Whitney even reversed her outlook for the banking sector, moving Goldman Sachs back down to neutral from the buy upgrade that halted the July correction three months ago.

The market began this reporting period by rallying strongly in response to Alcoa’s report that its earnings were 71% below the 3rd quarter of last year, but that at least it had a small profit.

It also surged up in a big rally on Wednesday in reaction to Intel’s report that its sales and earnings declined again (but beat Wall Street’s estimates).

However, the market did not take kindly to Thursday and Friday’s reports from CitiGroup, J.P. Morgan, Bank of America (a $2.2 billion loss), nor from the likes of economic bellwethers General Electric (a 44% decline in earnings), IBM (lower sales), or chip-maker Advanced MicroDevices (another loss), or Halliburton ( a 61% earnings decline), even though most beat Wall Street’s estimates.

Those latter reactions could be signs the market may not be as willing to take “less worse” as a sign of economic recovery this time around. If so, that raises questions about where the market will get its support to extend the rally still further, particularly given its unusual longevity already, and the seemingly overbought condition created by that lack of a normal correction.

It’s still early in the earnings reporting period, and the market’s response to earnings reports the last couple of days may have been a temporary aberration.

But it may also be a warning that in its current over-extended condition the market is susceptible to a downturn if subjected to less than stellar earnings reports this time around.

Until next time.

Sy Harding publishes the financial website and a free daily market blog at

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules