Second-quarter earnings reports are starting to arrive and analysts are expecting solid results. But market watchers say it's more important than ever to focus on what companies see coming down the road, rather than what's in the rear-view mirror.
Second-quarter earnings reports are starting to arrive and most market analysts expect that companies will be sporting strong results. Because of last year’s crash-and-burn environment, year-over-year results should look very good.
But that’s exactly why it’s important to look at what the companies expect the second half of the year will bring, Wall Street analysts says. Market watchers will be focusing more on what companies see down the road, rather than what’s in the rear-view mirror.
Will the second half of the year be strong or weak? Investment pros are predicting that firms with solid earnings but so-so second-half guidance could suffer some big hits in their stock prices. If a lot of companies forecast second-half weakness, it might trigger a switch to so-called defensive stocks with strong cash flow and low debt.
Concerns about second-half weakness and a possible double-dip recession abound. Henry Blodget’s Business Insider put together this take on why Americans have reason to worry about the direction of the U.S. economy.
The folks at SmartMoney.com see potential problems in several areas. The semiconductor sector, for example, which is often one of the leading indicators of market rallies and slumps, the consensus second-half forecast may be too optimistic. Energy companies, on the other hand, are at the mercy of the economy and, if a double-dip recession is in the cards, they could get hurt badly. New restrictions on deep-water drilling could also affect the sector.
The same cautions apply to retailers. Conflicting reports from indicators like the consumer confidence index muddy the picture, but market watchers see few signs that consumers, still worried by the weak job market, are going to go on a buying spree any time soon.