Earnings Season

Right now we are in the midst of earnings season and investors are reacting to news from individual companies, and in general it has not been good. This reflects the fact that we are in a very weak economic period. But it also reflects the lack of visibility by company managements and so they are keeping expectations low. I think it is the appropriate strategy. Expectations need to be lowered. It may make investors nervous, but eventually we will see positive surprises. That may not happen next quarter, but it could be sooner than most think. Recessions (and let us agree that we are in one now) tend to last on average 11 months, but stocks bottom about half way through and then begin to move up. We may not be in an “average” recession, but the point is stocks begin moving up before we see an improvement in GDP.

Of course, this morning all the talk was about how the overseas markets were down big and the futures in the US were at their limit lows. It looked like today could be really bad, and for awhile it was. But as the day progressed, investors began to buy. The market seemed to be acting more rationally. Still we ended up down over 300 points, but it appeared like it could have been much worse.

I am certain we are still seeing some panic selling. I also know that we are still feeling the effects of hedge funds liquidating their positions. This will all take some time to work through, but we will. And when it does, we will once again return our focus to company fundamentals. I said to many people during the tech bubble of the late 90s that valuation matters and it still does today. There are some incredibly cheap stocks available for purchase. Do your homework during earnings season and be prepared to buy.