Second quarter earnings season officially kicks off today, as companies report on their performance during the first quarter of 2012. Dow component Alcoa, an aluminum company, reports shortly after the market close. Earnings have been incredibly strong for the past few years coming out of the last recession, and have been one of the main drivers powering the stock market climb.
Earnings are showing some signs of tiring, though. Results for the fourth quarter of 2011 were the slowest in eight quarters for both Operating and As-Reported (net) earnings, according to data from S&P. (As-Reported earnings were slightly negative on a year over year basis.) And analyst estimates for first quarter Operating earnings have been trending lower since last summer, from a high of close to $26.50 down to $23.73.
On one hand, the decline in estimates can be viewed bullishly, since the hurdle has dropped and companies may be better able to surpass the lowered estimates. On the other hand, combined with a recent spate of economic disappointments, some investors are concerned that slowing earnings are a sign of a broader ebbing in the economy. Either way, this is setting up to be a particularly important earnings season.
I took a very close look at earnings and what they might mean for the market in Pinnacle’s recent special report, “Can the Bull Market in Earnings Continue?” If you haven’t read it yet, click here to download your copy.