What Do This Quarter’s Mixed Earnings Results Mean?

Market May Be Entering a New Cycle—But Don't Buy Just Yet!Oracle Corporation (ORCL) announced a quarterly revenue gain of three percent, but Wall Street was looking for more and the company’s share price retreated on its earnings results.

If it weren’t for the Federal Reserve, we probably would be in a correction, if not a consolidation, which has been the broader market’s go-to trend when it should have retreated further.

It’s such a mixed bag out there both in terms of economic news and corporate reporting.

While I think dividend-paying blue chips have the advantage going into the second-quarter earnings season, if the Federal Reserve wasn’t so extremely sensitive to Wall Street, this market would probably be a lot lower.

Even the Fed’s recent language is assuaging. If this market had to operate on its own (with free market interest rates and liquidity), things would be a lot different.

But this isn’t the environment we live in. Economic history clearly supports the scenario that it doesn’t pay to fight the Fed and that Wall Street will move mountains when it has Fed certainty.

Lots of investors bemoan the quarterly earnings cycle or game, but I don’t. I want to know a public company’s up-to-date financial results as frequently as possible.

While earnings are managed, over time, a business can’t manufacture success unless it’s a fraud (which, sadly, does happen).

Big companies have the operational leverage and the cash to keep boosting their earnings per share. Oracle’s latest financial results were uninspiring, and while recognizing that this is a very mature business with growing competition in the cloud, the position advanced a material 10 points since last June—this seems so overdone.

However, one company’s earnings miss isn’t a trend to latch onto. Intel Corporation (INTC) recently upped its guidance and the Street didn’t expect it.

For many earnings seasons now, the numbers have been mixed. While the broader market has continued to tick higher thanks to monetary policy, the broader equity universe is replete with uneven corporate results. (See “Biotechs, Small-Caps, and IPOs: Making Sense of This Peculiar Market.”)

So, with this backdrop, investment risk is high, and I wouldn’t be buying stocks in advance of their earnings results.

In my view, the equity market has begun a new cycle, a secular bull market represented by the strong breakout in 2013 from the previous recovery price cycle that lasted longer than a decade due to the technology bubble.

But new business cycles take time and within a secular bull market, the U.S. economy can experience its next recession and several full-blown stock market corrections.

I’m actually optimistic this earnings season, but just as they have been for many quarters, the numbers won’t be uniform among industries.

The stock market does not represent the Main Street economy and it never will. It’s a secondary market full of speculators making bets on a company’s ability to deliver earnings growth and pay dividends.

Second-quarter financials are around the corner. Already, it’s been a mixed bag of results.

So far, the numbers offer up no conclusive trend; investors should be very reticent about buying stocks now.