Once again, investors in some corners of the market were bracing for an earnings Apocalypse. Once again, fears were exaggerated.
Why? I think I can point to a couple of reasons.
First, analysts have historically been too conservative with their forecasts for corporate earnings. Q1 was no exception.
Second, we’re not in a recession… at least not yet. Fortune 500 companies are huge. Sure, they can execute well and expand their reach. But they aren’t immune to missteps. If they fail to execute, it can be reflected in sales and profits.
But because they are so big, most aren’t immune to the tailwinds and headwinds that an economic expansion or recession will bring. If folks are spending, they benefit. If folks are stingy, they feel the pain.
Earnings for S&P 500 firms will likely end up falling less than 1%. On an absolute basis, it’s not impressive. But analysts had been expecting profits to decline by over 5%.
In other words, it’s a beat, and on average, most companies are beating by a wider-than-historical margin.
It boils down to modest overall economic growth and an easy-to-clear hurdle.
