Market Beat: Watch the first quarter market earnings release
March 30, 2012
TRUCKEE, Calif. andamp;#8212; Regardless of the how the stock market reacts to a variety of economic data, the main driver behind stock market performance is corporate earnings. The market can fluctuate wildly on news of tsunamis, sovereign debt defaults, wars and other major global events, but in the end it all comes down to how those events will impact corporate earnings.The PE ratio or price to earnings ratio is one of the most commonly used valuation tools in stock analysis. The way it works is simple andamp;#8212; if a stock is priced at $20 per share and the company earns $1 per share per year, the PE ratio would be 20. Stocks in the market that trade with a high PE ratio indicate that investors are forecasting future earnings growth and they are known as growth stocks. Stocks that have a low PE ratio are known as value stocks because their current price is low relative to their earnings. For example, currently Apple stock has a 5-year average PE ratio of 18.54; Apple has been reporting strong earnings on their new products. The price of British Petroleum is down due to liability concerns over the Horizon oil spill and their PE ratio is down to 9.92.Corporate earnings are reported on a quarterly basis. Earnings season for the first quarter of 2012 will officially kick off on April 10th when Alcoa reports. According to Standard and Poorandamp;#8217;s/Capital IQ earnings growth for the first quarter is expected to come in at about 0.7 percent which is not real strong. Even though the report from Alcoa is considered to be the official kick off of the earnings season, so far eleven companies in the Sandamp;P 500 have reported. The best sectors this quarter are supposed to be industrials, information technology and consumer discretionary. The worst sectors are forecast to be materials, telecom and utilities.The recent run up in the stock market since October has been on an absence of bad news from the Euro Zone and we have seen some decent economic numbers on the home front. This quarterandamp;#8217;s corporate earnings reports are likely to be a little soft compared to the last few years coming out of the bottom of the 2008 recession. Thereandamp;#8217;s no need to panic, but investors should be alert for a possible mediocre earnings season this quarter.Kenneth Roberts is a Truckee based Registered Investment Advisor. Ken has been in the securities business since 1992, has worked as a branch manager for a major Wall Street firm, and is currently a portfolio manager for Fusion Asset Management. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.