Rises in first quarter earnings are ridiculous reason to be optimistic


  • This week will be an extravagance income report.
  • The bulls are hoping for profit beats.
  • But what good is it to beat the terrible predictions?

Stock indexes rose Monday before a deluge of first quarter results. The actions extended a modest four-day rally as the first states prepared to ease restrictions on coronaviruses. Markets have also warmed to a much-needed increase in testing capacity.

The Dow Jones ended the day up 1.5%, or 359 points. The S&P 500 Index was closely linked to the 1.5% gain in the Dow Jones. And the Nasdaq Composite finished 1.1% higher.

But don’t call the gains beat the win this week

This week, market analysts are covering possible profit beats as bullish news for their company’s stocks. They cover the profit season as if it were an old first quarter. In other words, as if the coronavirus and job losses overshadowed the Great Depression.

It’s very strange.

For example, Zack’s Equity Research writes on the Facebook earnings report (NASDAQ: FB):

Have you looked for a title that could be well placed to maintain its winning streak in its next report? Consider Facebook (FB), which is part of the Zacks Internet – Services industry.

This raises a glaring question.

What good is it to beat an already gloomy profit forecast? The average analyst expectation? Facebook made earnings per share of $ 1.75 in the first quarter, out of $ 17.5 billion in revenue. This is down 31.6% from Facebook’s earnings per share of $ 2.56 in the fourth quarter of 2019.

Year over year, Facebook is reported to have lowered its EPS by $ 1.89 a year ago without this multi-billion FTC fine. Even if Facebook beats profit forecasts, why would that in itself make a purchase from FB? And is a 9% drop in EPS, instead of the -11% expected, a buy signal for Amazon (NASDAQ: AMZN)?

The stock market euphoria of January 2020 was sufficiently inappropriate. But even the economic indicators at the level of the coronavirus and the Great Depression did not shake the sensation.

We are in another great depression

Companies beating already disastrous earnings contraction forecasts are a silly reason for markets to be long stocks. To do a little better than the horrible estimates is not good news. It’s less harmful, but it’s still horrible news for these companies.

According to Raymond James, chief investment officer, Larry Adam, here’s what the stock market is rallying this week – a 14.4% profit slump:

Overall, the S&P 500 should now see a 14.4% contraction in first quarter profits, with most of the weakness coming from the energy, consumer discretionary, financial services, industrial products sectors and materials.

The 122 S&P 500 companies that have already posted profits are down 22.7%.

The coronavirus has crippled the economy, and there is no way to be sure what will happen with the next pandemic, or how governments and the general public will respond to it.

Meanwhile, Kevin Hassett, a Trump economic adviser, said on Sunday:

This is the biggest negative shock our economy has ever experienced, I think. We are going to look at an unemployment rate that approximates the rates we saw during the Great Depression.

He gave a terrible sense of scale:

During the Great Recession … we lost 8.7 million jobs in total. Right now we are losing as many jobs every ten days or so.

At best, coverage of positive profits assumes that stocks have already taken their course in the apocalypse. But then again, the forecast too. It’s a very strange moment to be optimistic.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered as investment advice from CCN.com. The author has no investment position in any of the securities mentioned.

This article was edited by Aaron Weaver.


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