More Good Earnings; Can the Momentum Last?

Good EarningsThere are lots of earnings reports still pouring in, and many of them are pretty decent. But while we round out 2014, I wonder if the momentum in stocks can last into 2015.

Tiffany & Co. (TIF) didn’t beat the Street’s consensus on either revenues or earnings, but the stock pushed higher to a new record-high anyway after the company confirmed its fiscal 2014 full-year outlook.

The company’s latest quarterly earnings report revealed a 10% gain in sales in the Americas and a nine percent comparable increase in Europe. But Asia Pacific sales only grew two percent and Japan saw a 12% decline.

Palo Alto Networks, Inc. (PANW) sells network security equipment mainly to companies and government entities. The company handily beat consensus with revenues growing 50% to $192 million in its most recent quarter.

Management cited strong demand across a variety of customers for its network security products. The stock really accelerated this year. It’s doubled over the last 12 months.

And Haynes International, Inc. (HAYN), which is a manufacturer of specialized high-performance alloys used in aerospace and industrial markets, reported a solid fiscal fourth quarter with a material increase in its backlog.

Company management cited that its business conditions were improving and mill volumes are on the increase.

Of course, the marketplace digests all the numbers and given valuations, it has, in a sense, already bid on improving business conditions.

Corporations are still hoarding cash and returning it to shareholders instead of making major new investments.

And other major economies aren’t doing much to help the cause, which I think limits the potential for double-digit gains from stocks in 2015.

I’m still a big fan of income in a slower-growth environment. There’s good potential for increasing dividends among existing winners and companies have the cash to afford it.

A material break in share prices would not be unreasonable—or a surprise at all. But what the market needs in terms of affecting investor sentiment is a catalyst, and this is elusive, considering the fundamentals that currently exist.

These include a very supportive monetary environment, strong corporate balance sheets, good earnings, and low capital costs.

Lower oil prices are definitely a bonus to corporate earnings and individuals. And companies, which always try to outperform or beat the Street when they can, I believe, are underplaying their earnings growth for the fourth quarter.

This is a market that can still tick higher if we keep the status quo—that is, no new catalysts to create uncertainty in capital markets.

It will probably be a low double-digit performance for the three main stock market indices this year, which is a feat in itself after the strong capital gains of 2013. But stocks probably won’t be able to maintain their positive disposition for much longer without better news from other large economies, particularly Europe, where U.S. conglomerates need the earnings contribution.

Now is the time for investors to lower their expectations and refocus on investment risk. My near-term outlook for stocks and corporate earnings remains positive, but I would be surprised if earnings growth and rising share prices can last much past the first quarter of 2015.

Things are getting a little long in the tooth.