But are quarterly earnings a reliable signal of future sustainable stock gains? In this case, I think not. Closer examination of the quarterly earnings numbers shows that companies beat earnings estimates through cost cutting. Cost cutting equals layoffs. Job losses signal weaker future demand. I wouldn’t consider that a bullish signal for stocks. Less than half of the companies that have reported earnings beat sales estimates, and a quarter of those that beat estimates were in the financial sector. Sales of S&P 500 companies are down 16% over the same period last year. The only sectors that reported sales gains were health care, telecom, and the volatile financial sector. If your portfolio is still littered with stocks you’d rather not own, sell into the strength.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Have You Cut the Cord Yet with Cable? - August 16, 2019
- Incumbents Fight Back Against Amazon’s Rx Inroads - August 15, 2019
- Is China Set for a Crisis Four Times Worse than the Great Recession? - August 14, 2019