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Almost all of the S&P 500 has reported Q1 earnings.   The numbers were terrible on a year over year basis, but could be skewed positive on a quarterly basis if you don’t overlook the improvements in the financials.  AIG’s loss in Q4 substantially alters the figures and the accounting change combined with inflated FICC figures boosted Q1 earnings – not exactly apples to apples comps.  Earnings are off 26% vs last year and net income is off 32%.   Minus the financials (something we don’t hear anymore) earnings are down 36%.  Health care is now contributing 28% of all earnings.  Sales for the S&P are down 13% year over year.   All in all, this most recent earnings season was a decent one mostly because the estimates have come down so much.

As you can see below, my proprietary expectation ratio has hit a new year to date high.  New readers can read up on the ER here.   The ratio over 1 now means that more companies are issuing positive guidance than negative guidance.  This is incredibly important looking ahead because it means that analyst expectations are finally in-line with guidance.  If I were to see continued strength in the ER and a quarter or two of real earnings improvement I’d have to dust off my bull market playbook.  For investors with a long time horizon this is a clear sign to stick to your bullish game plan.  For the near term, we’re still working under the thesis that this is a bear market rally and that the market is not out of the woods just yet.