Earning's Season--7/22/2015

I've been talking about my earnings worries for awhile and specifically mentioned my concerns about earnings in the last quarterly newsletter and in my 3/25/2015 "Capital Market Note" right here on this website.  Well, we are in the middle of earnings season again and last night Microsoft, Apple, and Yahoo all must have disappointed Wall Street as those stocks are down fairly significantly in trading today.

But more broadly, S&P 500 earnings peaked in September of 2014 at $106.75/share.  According to Howard Rosenblatt of Standard and Poor's, earnings are on pace to come in this quarter at $98.37/share.  That is a drop of 7.85%.  

However, the S&P 500 has actually posted a price gain of 7.15% over that time frame.  I think what has been happening is the euphoria of the investment community and consumers has led them to be lulled into a sense that the market has been performing well earnings-wise, due to the fact so many companies are beating the consensus earnings figures.  But that doesn't mean they are growing earnings!!!

Two things drive stock prices...AND ONLY TWO THINGS; earnings and the multiple applied to those earnings.  Both need to be watched carefully.