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Early Corporate Earnings Season Indicators Looking Good …

Stock-Markets / Corporate Earnings Apr 27, 2010 - 07:47 AM GMT

By: Nilus_Mattive

Stock-Markets

Best Financial Markets Analysis ArticleYet another earnings season is upon us, and so far things are looking good.

For example, through the middle of last week about 85 stocks in the S&P 500 (worth 26 percent of the index’s total value) had reported their results. And all told, 82 percent of those companies had beaten Wall Street’s estimates. Their aggregate results also represented a 5 percent gain over results during the same quarter last year.


And just yesterday we got more positive results from Whirlpool (profits more than doubled) … Caterpillar (back in the black, raised its outlook) … and Humana (earnings up 26 percent from a year ago).

More importantly, sales numbers have also been looking good — about two-thirds of S&P 500 companies have been reporting revenues that are higher than both consensus expectations and last year’s numbers.

As you might remember, I’ve previously said that sales were an extremely important measure to watch … especially if you’re looking for signs of a real recovery.

Why?

Because it’s easier for companies to temporarily boost their profit numbers through cost cutting, number shifting, and other methods. But those techniques can only carry the torch so far. Long-term success depends on real dollars coming through the doors — i.e. sales gains.

Fortunately for corporate America, it does look like there’s real follow-through happening.

And this dovetails with what I just told my Dividend Superstars subscribers in their latest issue — namely, that American consumers are starting to open their wallets again.

Take the latest numbers from the Bureau of Economic Analysis. For the month of February, the BEA’s measure of personal consumption expenditures rose 0.3 percent from January, marking the fifth straight consecutive gain.

U.S. consumers have been snapping up plenty of stuff lately, including Apple’s new iPad!
U.S. consumers have been snapping up plenty of stuff lately, including Apple’s new iPad!

Other indicators are pointing to the same thing. For example, automakers experienced brisk sales in March … the U.S. Census Bureau says retail trade sales were up 7.6 percent vs. March 2009 … and legions of people had no problem shelling out hundreds of dollars for Apple’s latest invention, the iPad.

I’ll be the first to admit that I’m surprised by such resiliency.

Not that I ever doubted our nation’s desire to resume its love affair with shopping or its ability to come back from the crisis. I merely thought it would take a little longer than a year — and I certainly wouldn’t have expected as much of a rebound with credit still relatively tight and unemployment hovering near 10 percent!

The Return of the Consumer Is Both Good News and Bad News, Though …

What we have here is a self-reinforcing cycle:

The markets head higher because corporate results are looking better and the economy looks stronger …

Corporate results and the economy gain because consumers spend more …

And consumers spend more because they see signs that the economy is strengthening and their investments are rising.

Oversimplified? Maybe a bit.

Debatable which element came first this time? Perhaps.

But nobody is going to deny that this cycle is at work right now.

I would argue that it’s precisely why the nation’s personal savings rate is dropping again, too.

Take a look at this chart from the Bureau of Economic Analysis, which measures how much of disposable income Americans are socking away …

Personal Saving Rate

As you can see, Americans collectively pulled in their horns as the recession hit in full force, with the saving rate hitting 5 percent. Then, in the second half of 2009 it began coming down.

The latest monthly numbers from January and February show continued drops to 3.4 percent and 3.1 percent, respectively (not depicted on my chart).

Again, this is all good news in the short-term — especially for stocks.

But whether or not it is the right long-term development for our nation remains to be seen.

After all, will the personal saving rate ultimately go right back to 1 percent (or lower)? Have Americans already forgotten those “new” lessons of thrift and conservation? And if they have, can a whole new round of debt and fiscal disregard possibly continue for any length of time without another major blowup?

I’ll leave that conversation for another day.

For now, suffice it to say that everything from earnings numbers to consumer spending figures are pointing to continued recovery. And for stock investors it is translating into more gains, with the Dow having risen for eight straight weeks!

Best wishes,

Nilus

P.S. With strong earnings reports pushing the market higher, and consumers spending more freely, many discretionary stocks are really thriving. That’s why I just profiled five of them in the latest issue of Dividend Superstars, which just went to press.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


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