Are Corporate Earnings Finally Improving?

One of the primary reasons for the poor performance of the stock markets in April was due to disappointing corporate earnings outlooks. Many investors had been anticipating a strong second half of 2002 and some forecasters (us included) had been looking for an even earlier, second quarter improvement in corporate forecasts. However, April showers rained on the coporate outlooks and gave us one of the most dismal months of performance in a long history of relatively positive Aprils.

Thankfully, mid-May, corporate forecasts for the remainder of the year are finally starting to show the positives we’d been expecting. Last Tuesday (5/7) after the market had closed, Cisco announced positive earnings that sparked a furious, if brief, one-day rally. This week (5/15) other technology stocks, as well as old-line stocks, have produced another series of positive earnings announcements. Traditional retailers such as Wal-Mart and J.C. Penny’s along with other technology firms like Applied Materials and Brocade Communications all announced positive results and stronger outlooks for the remainder of the year.

If it’s true that April showers bring May flowers, lets hope that old rhyme applies to the stock markets recent performance and we see more corporate earnings blooming and soon. This stock market is still very fragile and somewhat expensive, unless corporate earnings strengthen. Stronger cash flows and profits with an improving economic environment would be just the right combination to allow for a robust stock market.