Stocks Turn Down for No One as Earnings Season Gets Under Way

Jul 14, 2014 12:29 pm ET

(For more Market Line insights, see NI MKTLINE.)

July 14 (Bloomberg) -- The earnings reports will come in fast and furious this week, so the time for idle chatter is long gone. Instead, it’s time to tackle all the important, pressing questions lingering over this market’s head.

Without further ado, here they are:

Q. “Dawn of the Planet of the Apes” topped the box office this weekend. How does the current market cycle compare with previous “Planet of the Apes” cycles?

A. The last “Apes” debuted in August 2011 amid a perilous time for stocks. The Standard & Poor’s 500 Index was in the process of losing 19 percent as the U.S. government lost its top credit rating at S&P. The benchmark has rallied 65 percent since, shocking anyone expecting a repeat of the bear market between the original “Planet of the Apes” in 1968 and the sequel in 1970.

Q. That was a really stupid question. I’m ashamed I asked it. Is there anything smart and insightful you can say about the earnings season?

A. Companies are much less pessimistic than they’ve been in recent months, according to Wells Fargo & Co. senior equity strategist Gina Martin Adams. Since the end of the last reporting season, 19 companies have given 2014 earnings outlooks that may be better than analysts forecast and 25 warned they will trail estimates, Adams wrote in a report today. That is a big improvement from the average 4-1 negative ratio over the past four quarters and the negative 7-1 seen in the first quarter, Adams wrote.

‘Most Crowded’

Q. What about banks? Aren’t they supposed to have a terrible earnings season?

A. They are, yes. Analysts forecast earnings at banks sank 8.8 percent last quarter, the biggest drop among 24 industries. However, banks are “the most crowded underweight in U.S. stocks” due to concern about the regulatory environment, according to BMO Capital Markets Chief Investment Strategist Brian Belski. Many investors are missing earnings-revision, valuation and macroeconomic trends that suggest they should revisit banks, he wrote.

Jell-O Shots

Q. Why has no one on Wall Street compared the rallying markets and economy to the summer club-banger hit “Turn Down for What” by DJ Snake and Lil Jon?

A. Our national nightmare is over. David Zervos, chief market strategist at Jeffries Group LLC, who likes to compare Federal Reserve stimulus to Jell-O shots, made the connection today. “‘Turn down for what’ is a rhetorical question,” Zervos wrote in a note to clients this morning. The song “is essentially asking, why should we stop the party -- why should we ‘turn down?’ And his answer (like ours) is simple -- there’s nothing, at present, which can derail this party.”

Q. OK, smarty pants, what about Goldman Sachs Group Inc.? What’s their call?

A. Funny you should ask. They’re not turning down either. David Kostin, chief U.S. equities strategist, just made a big revision to his year-end S&P 500 forecast, calling for it to rise to 2,050 by the end of the year compared with a previous prediction of 1,900. That’s a 4.2 percent gain from last week’s close. He cited improving economic and earnings growth and said low-valuation stocks will outperform.

No mention of “Planet of the Apes.”