The coming Q1 earning season is going to be horrendous. Everyone knows that, though some optimists might argue that it’s all priced in. Overall, analysts expect a 37% decline in profits.
Priced in or not, stocks have tended to fare poorly during earnings season:
WSJ: Investment research group Bespoke Investment Group LLC in Harrison, N.Y., looked at all earnings seasons going back to mid 2001 and found that investors who bought the Standard & Poor’s 500 on the first day of the season and sold on the last day would have lost 26.6%. By contrast, those that did the inverse would have garnered a return of 7.1%.
The numbers look particularly pertinent this quarter, considering that the Dow Jones Industrial Average has gained about 21% in the last four weeks and the S&P 500 is up an impressive 23%.
Historical patterns aside, what’ll stop the rally dead in its tracks will be comments from companies that there’s no rebound in sight or that the future remains extremely cloudy. And there’s no doubt many will say this. Just look at Manitowoc (MTW) last week. Things are still getting worse for the crane maker. Many more will be as gloomy.