Sunday, January 21, 2007

Weekly look ahead

This week 23% of the S and P 500 companies report earnings, so most of the suspense on where earnings are going should be gone by the end of the week.

Last week saw a tumult of initial earnings as well as my early prediction that we would finally see year over year growth rates below 10%. So far with about 15% of the S and P 500 reporting Thomson Financial reports earnings growth is about 9.3%. Also note that more than half the results so far have been from financial companies, where profits have grown among the most of any sector. So we should expect change to the downside, not the upside, which could mean a dissapointed market moving forward.

Meanwhile a trend is emerging where companies report reasonable earnings and then warn about reduced growth in the future. Witness the recent report from Apple Inc and all the mayhem that followed. We may see more of this sort of announcement, so hold on to your hats and plan accordingly. (By plan accordingly I mean: make sure you have a cash position, sell your overpriced highflyers, and maybe sell covered calls if you use that strategy.)


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