Investors turn to corporate earnings as a sign of U.S. economic outlook

Estimates for the first quarter’s earnings have fallen while the S&P has made massive gains. The earnings season is starting next week and the outlook may not be as pleasant as seen in previous periods.

Investors will need to turn to the earnings statements of companies in order to see whether or not the U.S. economic outlook is positive. The big question is whether or not the growth we have seen in the past 3 months will continue or if this is the beginning of another decline.

The biggest concern now is if the S&P’s gains since October (about 30 percent) are realistically founded on proper principles. This is especially a concern after last Friday’s release of weak employment figures. Estimates were set at around 205,000 additional jobs; however, a dismal 120,000 new jobs were reported.

“It seems like we’re hitting resistance,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. “I think the market will grind higher, but it will be at a much slower pace. Earnings and jobs aren’t helping.”

Investors and fund managers will look at the earnings of companies in order to asses what the situation actually is among mixed economic indicators that have been recently released. Strong earnings results will aid in continuing the market rally that has been seen in the past months, weak results could play a part in the start of another decline in market growth.

The important information needed in order to make some conclusions will be the data on orders and on consumer spending. If consumer spending does not look sustainable, this could be a real problem.

Mixed Signals

Analysts have been cutting estimates steadily for a few months now; however, the good news is that there seems to be a decrease in reductions. Still most analysts feel that it is too early to switch to a positive tone as there is still not enough information and mixed signals.

ScanDisk Corp. stated on Tuesday that weak demand would hurt the company’s revenue and margins. This resulted in heavy declines in the company’s stock.

On the other hand, Bed Bath and Beyond posted results that exceeded expectations, resulting in and all time high stock price on Thursday.

Alcoa will release results on Tuesday followed by Google Inc, JPMorgan Chase & Co, and Wells Fargo & Co later this the week.

Over the last few weeks, growth estimates have generally dropped even with positive data such as an improved  U.S. demand and a rallying equity market. Overall the view for the coming quarter seems pessimistic. More information obtained in the following weeks will be needed in order to confirm the state of corporate earnings and the U.S. economy.

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