Earnings above low expectations? Probably. Revenue growth? Unlikely. Will that be enough for a rally?

10/05/2009 10:43 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Last June when this rally looked likely to falter, earnings bailed it out.

Not that earnings were so great. They were just better than expected. Analysts had reduced their predictions by so much, in fact, that some companies turned in quarters that were 20, 30, or even 40 cents a share better than expected.

On October 5 the market moved on on the hope that earnings season, which starts on October 7 when Alcoa (AA) reports, can repeat that magic.

Of course, this quarter and last everybody wanted to look at earnings. And no one wanted to look at revenue. Because while earnings were inflated by one-time good news at many companies, almost no one was actually selling more stuff.

I expect this quarter to be the same. Especially in the banking sector where the rally in the prices of what were once called toxic assets has given banks a lot of paper profits to book.

So it shouldn't come as a surprise that the specific catalyst on Monday was a report from Goldman Sachs (GS) recommending the biggest of the big banks. Wells Fargo (WFC) jumped 6.9% and JP Morgan Chase climbed 4.6%.

At some point, of course, companies have to deliver revenue growth if earnings are to grow instead of just beating rock-bottom forecasts. Wall Street is predicting that will happen in 2010 and that in the meantime, for the next two quarters anyway, hoping that investors will be happy with earnings that are "better than expected."
  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS