On This Roller-Coaster, Earnings On Path To 4-Year High
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Stocks have fallen sharply Wednesday, after weak manufacturing data from the Institute for Supply Management and a bailout package for Portugal set a tone for the day that reined in gains from a series of strong earnings reports. S&P 500 had its third straight day of declines yesterday, and today it is down 0.6% half an hour before the closing bell.
A first quarter report this week from First Solar, the largest solar energy company in the world, sent shares in the stock down 6.4% Wednesday. This was a curious reaction to the companys results, which beat the streets expectations on both the profit and revenue count, however it is also nothing the company hasn’t seen before. That stocks chart going back one year looks like a ride that is not for the faint-hearted. Whether it is uneasiness over the future of solar power in highly regulated areas like Europe, or the companys performance estimate for 2011 that places most of the earnings in the second half of the year, investors didn’t like what they saw this week. (Read First Solars Net Income Down By More Than 30%)
Wednesday the Dow Jones industrial average dipped 74 points to 12,733 and the Nasdaq fell 5 points to 2,835.
A note from Janney Montgomery Scott took pause during this period of weakening investment to look ahead and weigh its bullish outlook on corporate profits with the remainder of the year.
On the one hand, strong earnings reports are flooding the street with news of higher margins and stronger global sales. 74% of the companies polled by Capital IQ have beaten profit expectations so far this year. Of the S&P 500s components, 10% have turned in earnings surprises for the first quarter.
Top line growth will ultimately facilitate the job creation that has been sorely lacking in the post-recession recovery, writes Mark Luschini at Janney.
According to Janneys research, three quarters of the companies that have reported so far in 2011 have exceeded revenue estimates, which may be good news to Ben Bernanke, who said in a press conference following last weeks FOMC meeting that job growth is still occurring at too slow a pace for the Fed to raise interest rates in the near future.
On the other hand there is profit growth, which Janney is bullish on as well, saying that they will exceed the previous annual high that occurred a year before the crash in 2007. The Federal Reserve predicts that economic growth to be in the range of 3.1%-3.3% for this year. If that holds, equities should continue their advance, even if some of the easier gains may already be in for the year.
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