Companies in the Standard & Poor's 500 Index through May 11 reported an average earnings gain of 13 percent in the quarter, according to data compiled by Bloomberg. The last time growth was less than 10 percent was the second quarter of 2002.
International sales helped by a weaker U.S. dollar and continued spending by U.S. consumers fueled the earnings advance. Concerns that the U.S. housing slump and rising delinquencies by subprime mortgage holders would damp profits have eased, analysts said.
First-quarter earnings advanced four times faster than analysts had projected as of April 13, as 76 percent of the 444 companies in the S&P 500 that reported through May 11 met or topped projections. Twenty-seven percent beat estimates by at least 10 percent.
Let's review a few key points.
1.) Analysts don't like being wrong. So it's fairly possible they low-balled their estimates this quarter, making these gains that much more impressive.
2.) CEOs probably low-balled their estimates as well. Earnings that "surprise" are more likely to lead to a rally in the underlying stock.
3.) How much of the increase in international sales was due to a decreasing dollar and how much was actually due to an increase in sales? The difference is very important. Asia and Europe are expanding which means there should be an actual increase in international sales. However, it's important to qualify the difference.
4.) All that being said, this is a good quarter. And the increase in earnings are a primary reason for the market's increase over the last few months. However, it's also important to ask the important qualifying questions to get the story straight.
