Earnings Mid-Season Report: Momentum That'll Be Hard to Keep Up

first-quarter earnings
first-quarter earnings

The peak week of first-quarter earnings season is upon us, and if that weren't enough to make traders twitchy, the market will also contend with a slew of data, ranging from home prices and consumer confidence to the latest readings on gross domestic product and manufacturing in the Midwest.

Oh, and in the middle of it all, on Wednesday we'll be treated to the latest policy statement from the rate-setting committee of the Federal Reserve.

The Dow Jones Industrial Average ($INDU) heads into all this with an eight-week winning streak on the line, something the blue-chip index hasn't done since 2004. That streak will be strenuously tested in the coming days, as half a dozen Dow components will report, including mega-conglomerate 3M (MMM), energy giants ExxonMobil (XOM) and Chevron (CVX), and consumer-staples bellwether Procter & Gamble (PG).

"I Am in Awe"

Given the market's cat-and-a-string-like focus on what's turning out to be a pretty amazing earnings season thus far, the streak seems safe -- for now. By mid-week more than half the companies in the S&P 500 ($INX) will have reported results. If the current trajectory of better-than-expected earnings and outlooks continues, there's ample reason to believe stocks will keep grinding higher.

"I am in awe," Ed Yardeni, the presciently bullish president of Yardeni Research, told clients last week. "I've never seen forward earnings go vertical before. That's what forward earnings has been doing over the past few weeks for the S&P 500, as well as for the S&P 400 [mid-cap index] and 600 [small-cap index]."

The long-time market strategist has told clients repeatedly throughout the rally that there's just no arguing with the V-shaped recovery in earnings. And so far he's been on to something.

Just take a look at the chart below, courtesy of Thomson ONE. Easy year-over-year comparisons against the depths of the Great Recession have created a nosebleed-sharp rebound in the market's share-weighted earnings over the last six quarters.

A Record "Beat Rate"

No wonder the speculative money has pushed the S&P 500 up 80% from its bear-market low. Of the companies in the S&P having reported earnings so far, 83% have beaten Wall Street's expectations, according to Thomson Reuters. A beat rate of 60% is average, while 70% has been the new normal over the past several quarters. But the current numbers are eclipsing Street expectations at a record rate stretching back nearly two decades, according to Bloomberg.

The market just loves earnings momentum, so this is good news for bulls. But stocks are also priced for earnings momentum -- and then some. There's a geyser of blue-chip reports on tap this week. If the Dow has any hope of extending it's winning streak, they'd best not disappoint.