Earnings Season - It's Not Just Cost Cutting…
By Sean C. Meakim JGSM '11
Issue date: 3/8/10 Section: Features
With earnings season over, it's a good time to reflect on how the results fit with the market's expectations at the start of the year. It was another strong performance measured against analysts' expectations. According to data compiled by seekingalpha.com, 68% of S&P 500 firms beat expectations for the 3rd straight quarter. With myriad government stimulus programs force feeding the economy out of recession, this result did not strike this column as remarkable on the surface. Much of the talk in the weeks heading into earnings season centered on cost cutting. So when over 70% of firms beat revenue expectations as well, it begs the question: is this recovery for real?
Revenue growth reached 7% last quarter, and the leading sectors were Financials (+64%), Consumer Discretionary (+21%) and Information Technology (+20%). Considering the dire outlook for both Financials and Discretionary stocks in Q4 2008, it seems logical that their earnings had nowhere to go but up now that they are no longer staring into the abyss. But under the hood of this past week's revised fourth quarter GDP numbers (adjusted up to 5.9% from 5.7%), the economy remains an Ithaca-like wintry mix of signals, and visibility remains limited.
The majority of the growth came from inventory restocking, "fixed non-residential equipment and software," and increased exports. Inventory restocking alone accounted for nearly 4% of the change in GDP, which leaves many skeptical about the sustainability of this recovery. In looking ahead to Q1 2010, market participants will be looking for signs of life beyond U.S. stock shelves. Hopefully when earnings reporting picks up again in April, Ithaca's snow will have given way to signs of spring, and the market will have a clearer picture of where the economy is headed.
What is the smart money buying?
Goldman Sachs released its latest Hedge Fund Trend Monitor, which tracks the 13F quarterly disclosures of equity holdings by large, institutional investors. These disclosures always attract significant attention, as the big players review their competitors' actions over the last three months. Goldman's report provides highlights of December 31st filings for over 600 large hedge funds, with some surprising results.
Revenue growth reached 7% last quarter, and the leading sectors were Financials (+64%), Consumer Discretionary (+21%) and Information Technology (+20%). Considering the dire outlook for both Financials and Discretionary stocks in Q4 2008, it seems logical that their earnings had nowhere to go but up now that they are no longer staring into the abyss. But under the hood of this past week's revised fourth quarter GDP numbers (adjusted up to 5.9% from 5.7%), the economy remains an Ithaca-like wintry mix of signals, and visibility remains limited.
The majority of the growth came from inventory restocking, "fixed non-residential equipment and software," and increased exports. Inventory restocking alone accounted for nearly 4% of the change in GDP, which leaves many skeptical about the sustainability of this recovery. In looking ahead to Q1 2010, market participants will be looking for signs of life beyond U.S. stock shelves. Hopefully when earnings reporting picks up again in April, Ithaca's snow will have given way to signs of spring, and the market will have a clearer picture of where the economy is headed.
What is the smart money buying?
Goldman Sachs released its latest Hedge Fund Trend Monitor, which tracks the 13F quarterly disclosures of equity holdings by large, institutional investors. These disclosures always attract significant attention, as the big players review their competitors' actions over the last three months. Goldman's report provides highlights of December 31st filings for over 600 large hedge funds, with some surprising results.
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