April is Earnings Season One Year After the Bottom

Earnings season is approaching as the first quarter of 2010 comes to a close this week. In April, companies will try to woo us with their numbers and outlooks. With the market looking so toppy already, how will the market react? Consider Figure 1. Past 3 earnings season since the epic rally from March of 2009 have consistently been followed by market corrections (blue lines). Will we see the same selloff in a couple of weeks? As the Shocked Investor points out, "... positive surprises will be harder and harder to come by. Given that the markets are even more overvalued now, there is reason to expect similar behavior." On the other hand, this quarter's earnings report will be the first time in which the year-over-year value will be compared to a period in the worst of the fallout (see Q1 of 2009 in Figure 1). As such, it will no doubt be easier to paint a pretty picture as anything compared to an apocalypse will look good. With the market squeezed between the bulls and the bears entering earnings releases, the next few weeks should be interesting.

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