I’m starting to see a new pattern in third quarter earnings reports.  Now to see if it continues through the end of earnings season.

What’s the potential pattern? Companies that announce great earnings but that still don’t measure up to Wall Street expectations. The stocks take a beating after the report even though nothing is wrong with the company except that it didn’t meet inflated expectations.

If this pattern holds up, it would be yet another piece of evidence suggesting that the market is looking for a breather.

Tuesday’s Exhibit A is Cummins (CMI).

Cummins did indeed miss analyst earnings projections for the quarter. The company reported third quarter earnings of $1.33 a share and that was 8 cents a share below the Wall Street consensus.

It was also roughly a 140% earnings increase from the third quarter of 2009. So shoot them. Read more

Movement without direction: That was the stock market story last week but it’s about to change

The Standard & Poor’s 500 stock index closed on Friday September 24 at 1149. The index closed on Friday October 1 at 1146.

That’s a net move of 3 points in five trading sessions. For the past week stocks have been stuck in a rut. Spinning their wheels. As stagnant as Polka’s pond in August. (I played hockey there in the winter. In August you don’t want to know.)

For the first few days of this week I expect a replay of last week’s lack of net movement. But things will start to change on Thursday. That day brings the beginning of earnings season with a report from PepsiCo (PEP) before the market opens and from Alcoa (AA) after the market closes. And then on Friday the U.S. government will announce job and unemployment figures for September.

I’m willing to bet that even if you’re committed to torturing the data, you won’t be able to find much direction in those numbers. Alcoa simply isn’t the right company in the right industry to tell us how the economy is doing or what earnings season is going to look like. The unemployment numbers are moving so slowly that all they tell us is that they’re moving slowly. (Which is itself depressing this long after the official end of the Great Recession.)

Earnings season really starts to deliver the week after this with a report from Intel (INTC) after the close on Tuesday, October 12. Read more

So what could stop this rally?

Now that it has broken through resistance at 1127 and 1130 on the Standard & Poor’s 500–and even briefly traded at the May high of 1150—what could prevent this rally from running straight through September (historically the worst month for stocks since 1928) into October (historically the second worst month for stocks) and then finishing 2010 with an end of the year rally?

In other words what should you be afraid of—and when.

One word. Are you listening, Benjamin? Earnings.

But probably not in the way—or with the timing–you would expect.

I’m not worried that unexpectedly bad earnings reports in the third quarter earnings season that gets underway on October 7 when PepsiCo (PEP) and Alcoa (AA) release numbers for the third quarter before the New York Stock Exchange opens and after the close, respectively, will reverse the rally. If that were the worry, I’d be expecting the rally to stall somewhere after earnings season started on the actual report of bad news.

Instead I’m worried that the stall will come before earnings season starts as investors who have made good profits in the September 1 rally decide to take profits rather than run the risk of possibly disappointing earnings. If I’m right about that timing, stocks might actually be ready to resume their rally around October 20—after a pre-earnings season dip—as earnings season ends. (Depending, of course, on what the polls say then about the November election. Polls that show a Republican runaway will leave my estimate of timing intact. Polls that show the Democrats closing could delay the start of any rally. Wall Street, if you haven’t noticed, is rooting—and voting with its campaign contributions–for a Republican victory in November.)

Let me explain the logic of that timing. Read more

Earnings are solid–and the economy’s on track–even if the U.S. stock market doesn’t care right now

Earnings, schmearnings. The stock market simply doesn’t care.

After the close yesterday, May 18, Hewlett Packard (HPQ) reported earnings for its fiscal second quarter of 2010 of $1.09 a share. That was 4 cents a share better than Wall Street had projected. Revenue climbed 12.4% from the second quarter of fiscal 2009 to $30.8 billion. That too was above the Wall Street consensus (at $29.82 billion.) And the company raised its guidance for fiscal 2010 to $4.45 to $4.50 a share. That is slightly above the $4.45 Wall Street consensus and well above the $4.37 to $4.44 a share that the company had projected earlier.

The stock market didn’t care. Read more

Companies beat Wall Street earnings estimates at a record pace so far this quarter

So far, so good on the earnings front this quarter.

Third quarter earnings reports have beaten estimates at 79% of the 104 of the 500 companies in the Standard & Poor’s index that have reported so far.

Positive surprises in the second quarter helped fuel a rally that looked like it might be flagging in June. But then just 72%, a record now being challenged by this quarter’s results, reported earnings above e Wall Street estimates.

Sales, which have lagged earnings as companies got much of their profit boost from cutting costs, have so far exceeded estimates at bellwether companies. Read more