Earnings trump macroeconomics today--but how long can an earnings rally last without good news from the macro front/

07/19/2011 6:10 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

So far earnings are over-powering worries about the U.S. debt ceiling crisis and the euro debt crisis. The Standard & Poor’s 500 stock index finished the day up 1.6% at 1326.73.

I think this is a classic case of the stock market deliberately deciding to put off worries that are distant—like August 2—in favor of making profits on today’s good news. Of course, that means that today’s gains may not last once earnings season is over. But next week is heavy on earnings news too so there’s a good chance that the market will stay fixated on the immediate good news rather than looking ahead to macro problems.

This week we’ve had solid or better earnings surprises from Johnson & Johnson (JNJ), Coca-Cola (KO), IBM (IBM), Google (GOOG), VMware (VMW), JPMorgan Chase (JPM), and Peabody Energy (BTU). (The jury is still out whether Apple’s (APPL) earnings report today, July 19, is a positive on a huge earnings beat or a negative on typically lower guidance.)

Next week brings earnings reports from Amazon (AMZN), Boeing (BA), ExxonMobil (XOM), and Potash of Saskatchewan (POT). The earnings news from each of those stands a good chance of being above Wall Street consensus. And that would keep the earnings rally going.

I don’t know where we go from here—it depends on the news out of Washington on the debt ceiling and out of Brussels on the Greek rescue package. But if you want to play safe—and you remember that August and September are seasonally weak months for stocks—and you have positions that you were looking to trim or sell completely, well, this bounce is as good as chance as any.

Of course, you can wait to see what happens and hope for a bounce on good news on the macroeconomic front, but as my Aunt Tildie used to say, A bounce in the hand is worth two in the bush.


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