It's Not About the Earnings

Source

Over the past several years, regardless of the macro environment, the stock market focused on one thing during the first five weeks after the end of each quarter - earnings. Furthermore, each quarter over the past several years, earnings expectations and companies' actual results in comparison to these expectations marked the major turning points in the market.

Last quarter, if you recall, we started expressing our concern that this would change or, at least, there would be more disappointments, because of the spread of the subprime mortgage issues into the financials and other areas of the economy. However, other than some banks, there was little affect on stock prices.

At the start of this earnings season, we were seeing better economic conditions, improving consumer sentiment, and high expectations among analysts regarding this quarters earnings. Therefore, despite the higher volatility, new market highs in the face of weakening technicals - such as the advance/decline line, and extreme overbought conditions for nearly every stock on our internal list of companies most likely to beat expectations and/or raise guidance - we were confident the market would once again put all its other issues to the side and focus on earnings.

We were clearly wrong.

We take pride in being tuned into to as many different sources of quality information as possible and, what surprises us more than anything is that we heard no on else calling for the market sell off we saw last week - other than those that seem to always be calling for market sell offs. . . .

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