As we already know, the stock market moves based on how reality compares to investor expectations. The chart below, courtesy of Bespoke Investment Group, shows just how good earnings have been so far this reporting season.
Enjoy this post? Subscribe to the blog and never miss another one:
Subscribe in a reader | Subscribe by email | Subscribe with Kindle
| 
Yes, it shows “just how good” in two ways:
Versus expectations, really good.
Versus history, dismal.
The key question is which trend will continue.
Not exactly. Here’s a link (http://www.zerohedge.com/sites/default/files/images/EPS%201.jpg) to a bloomberg table that shows the actual results for Q2, year-over-year EPS. We’re at -32.4%. Not sure where Bespoke got their data or if there’s a difference in the data, but the 32.4% number is much closer to the red-line trend in that Bespoke graphic than the ridiculous green upswing. Besides, logically, is it possible that in one week the actual can swing so dramatically (even if it were a really busy earnings week)? Not likely.
What you can see, though, from this table – http://www.zerohedge.com/sites/default/files/images/EPS%202.jpg – is that the number of positive surprises has been overwhelming. Although if the theory is that positive surprises correlate with performance, one would have to explain why the most “balanced” sector in terms of surprises – Information Technology – has been the hands-down best performer of the year (ex-financials).
I agree with the tone of the above comment. The “just how good” leapt off the page. -25% is unquestionably better than -35%, it is less bad, but in no way does that mean good.
Well, judging from my post you can probably guess what my reaction to that would be. The numbers relative to expectations are the only thing that really matter on Wall Street because daily market pricing reflects current investor expectations. Absolute changes are irrelevant, as there is hardly any correlation between S&P 500 earnings growth rates and the percentage change in the S&P 500 index.