For the last two quarters, most companies that have beat earnings expectations have done so by aggressively cutting costs, rather than showing anything particularly good on the top end.
WSJ asks how much longer that can last and sustain this market.
According to Goldman Sachs Group Inc., 46% of companies beat Wall Street’s earnings expectations by a wide margin, but only 23% significantly bettered revenue forecasts. Sales among companies in the Standard & Poor’s 500 stock index fell 16% in the second quarter from a year earlier, following a 14% decline in the first quarter.
David Kostin, an equity strategist at Goldman, points to a decline in a key line item on corporate income statements known as “selling, general and administrative expenses” otherwise known as SG&A. Included in SG&A are salaries and costs of doing business, such as travel or advertising.
This chart from WSJ shows the speed and severity of the cost cuts, though as you’ll notice, the current downturn doesn’t look that out-of-the-ordinary from a historical standpoint. And it also tends to bounce fairly fast, which is good news for the unemployed.
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