Watch Guidance This Earning's Season

07/19/2013 2:30 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

For the stock market right now, it is all about earnings but Moneyshow's Jim Jubak suggests you focus on the guidance instead and he explains why it may be more important.

For the week ahead, as we move further into second quarter earnings season, you should be watching not the earnings being announced for the second quarter, but guidance for the third and fourth quarter.  The market basically has written off the second quarter.  Earnings are supposed to grow like 3.4% and that is the optimistic reading from the year earlier. 

The reason the S&P is back at all time highs, 1680 on July 17, a new high, is that people, panelists, Wall Street and investors are saying, “Hey, the third quarter is going to be better.  The fourth quarter is going to be even better.”  Expectations for the fourth quarter right now are for earnings growth, this is year-to-year, so fourth quarter of 2012 to fourth quarter of 2013, people are looking for earnings growth of about 12%, 11.8%. 

What you should be looking for right now is any sign that that is not going to happen or that it is actually conservative. I do not think there is much out there that would say it is conservative, so what you should be doing is looking to see whether, when companies say, “Oh, the third quarter”, which is usually as far as they go or maybe when they say when they do a conference call they talk about earnings for all of 2013, you can back the trend for the second half out of that number. 

You should be looking to see whether they are basically saying they see better times ahead.  The market certainly does.  The market is priced that way and if companies are not going to deliver earnings like that in the third and fourth quarter, then this market is too expensive.

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