It was a rollicking week for the market; whipped around by corporate earnings that continued the trend of top line misses and bottom line beats. By the end of the week, we saw knee-jerk reactions, particularly to the downside, become more acute.
We also saw stocks climb off the lows, driven by a sell first attitude. In fact, to a degree, I felt more emboldened by the market despite some high profile misses that still could not keep the Dow and S&P 500 lower. Nonetheless, it was a wild ride.
The NASDAQ Composite was down for the week, but it showed grit clawing back after touching the low Friday at 10:30. So what happens this week? Well, I think we’ll see more earnings beats, including top line beats.
Moreover, I think money that’s missed the big move might be ready to pounce. To a certain extent, it’s anecdotal; check out the losers last week, defensives names such as Consumer Staples (XLP) and Utilities were smacked around.
Winners for the year are the building blocks of success:
- Energy (XLE) +6.55%
- Industrial (XLI) +6.15%
- Materials (XLB) +7.97
I love these sectors in leadership roles, as all are still lower over the past 52-weeks, especially energy. That said, at some point, the market needs broader participation. I am not sure there’s enough cash in the market for that to happen; more importantly, the overall economic backdrop isn’t strong enough to support the same tide that lifts all boats.
My focus is on value and trying to limit risk. However, there are worrisome trends, including a lack of growth in corporate revenues. These trends have gone on long enough to be called a recession, maybe even a depression that needs to be resolved very soon. Calling the exact top to the national debt saying where the revenue decline crushes the entire economy is impossible. Considering the growing importance of overseas revenue, top line trends as a proxy for the U.S. government is frightening.
Earnings Bonanza
This week 1,000 companies will post earnings so it’s going to be wild. So far, 74% of companies have beaten bottom-line consensus; it’s that top line we are going to focus on. Moreover, if there’s a rebound in top line growth, it might be good enough to help justify valuations.
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