90% of the S&P 500 has reported Q1 earnings and the numbers are ugly, though improved from Q4. Health care is the clear winner this earnings season and remains the only industry in which I am seeing any sort of real strength. The industry now represent 26% of total earnings. Financials were the big winner in terms of share price movements this earnings season as estimates came in far above estimates. The quality of the earnings are terrible and I attribute the better than expected figures to a lack of analyst response to the changing environment as opposed to actual improvement in earnings. Analysts failed to respond to the AIG revenue boosts and the M2M change almost entirely. As reported earnings will be about 50% below last year. As reported earnings are set to come in at a $-1.83 year over year – the first time the index has ever reported a 12 month negative print.
My proprietary expectation ratio is at its highest level in over a year. This is a clear sign that estimates are coming in-line with actual earnings. This is an enormous positive for the markets going forward.