Lots of Companies Beating Street Expectations...or Are They?

There is a common theme this earnings season and it's occurring with both large- and small-cap stocks. Many companies are actually beating consensus Street expectations for earnings. They are beating on earnings, missing on revenues, and are guiding fiscal 2009 below previous estimates.

Although it's more difficult these days, many companies still try to engineer their earnings results to beat the Street. Many companies deliberately underplay their earnings expectations for the future, so that it looks like their business is outperforming come reporting time. You have to watch out for this, because a company can quite easily give the impression that it's growing, when it fact it's doing worse than in previous years.

I don't have a big problem with companies trying to "manage" their earnings, because profits are profits and I don't really care whether they beat consensus Wall Street estimates or not. It's always great when they do, but, in a bear market, it doesn't affect stock prices.

Also apparent this earnings season is the withdrawal of earnings forecasts for fiscal 2009. The business environment is just so uncertain that a lot of companies out there just can't estimate what's going to happen to their operations.

The stock market has basically moved on from fourth-quarter earnings season, and it is solely focused on economic data and what the government is doing to do to fix the situation. It is definitely a sad time for capital markets when the only catalyst is fiscal policy.

Frankly, I think investors are getting impatient with the current state of things and they want a reason or catalyst in the marketplace to take some action. The broader market is fed up with all the bad news and is frustrated that there isn't a "quick fix" for the situation.

This is the heart of the stock market's lousy mood right now. The market wants a fix for the current situation, but isn't patient enough for it to develop. The market is seeking answers from government policy makers, but they have very little to offer, because the marketplace caused its own bubble and there isn't anything that can be done about it. In my mind, there isn't any one fix for the current recession. The economy has to be allowed to correct itself from previous excess. The economy is in the process of returning to its equilibrium, but it's going to take several years to do it.

Profit Confidential

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