Why Positive Large-Cap Earnings Don’t Suggest a Strong Stock Market in 2015

Large-Cap Earnings NumbersAfter a slow start to the reporting season, large-cap companies are peppering the Street with good numbers. The stock market may be in consolidation, but a number of companies have announced solid earnings reports so far. But even these positive results don’t suggest a strong market for all of 2015.

Large-Caps Reporting Good Earnings Numbers

Alcoa Inc. (AA) produced a darn good quarter, with 2014 fourth-quarter sales up 14% over 2013, record cash from operations for a quarter, and the highest free cash flow since the fourth quarter of 2010. Aerospace and automobile sectors continue to be strongest for the company. This year, global sales of aerospace products are expected to grow 9%–10% over 2014.

Celgene Corporation (CELG) released preliminary earnings results that were excellent. The company expects its net product sales to double this year’s by 2020, with adjusted diluted earnings per share more than doubling at minimum for the same time period.

Dennys Corporation (DENN) announced that quarterly system-wide same-store sales grew 4.7% comparatively. The company said that it experienced its strongest system-wide same-store sales growth since 2006.

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But even with positive earnings results, the broader market continues to churn, uneasy about oil prices and just plain tired out from two full years of capital gains.

U.S. Economy Showing Plenty of Certainty, but No Catalyst in Sight for Further Upside

A material price correction could take place at any time going forward, though it isn’t likely during this earnings reporting season unless there’s a major shock.

Equity investors should prepare for one in terms of risk exposure with current positions, stop limits for speculative plays, and a wish list of positions to consider on a major pullback.

There is actually a lot of certainty in this market right now. Large corporations have great balance sheets and the cost of capital remains low. The Federal Reserve is completely onside (right or wrong) and will continue to support the equity market unabashedly until there is sustainable economic growth and solid wage gains. And the global environment continues to like U.S. equities and the U.S. dollar.

What’s important near-term is that investors detach from the stock market—a marketplace that has already gone up tremendously—and focus on what underlying businesses are saying about their operations. (See “Should Investors Focus on Individual Stocks in 2015?”)

This market may be tired and due for a correction, but sales and earnings are the guide. What corporations report about their operations continues to be the most material news of all.

Shortly, we’ll be in an earnings barrage, which will be helpful to a marketplace in which sentiment is consumed by oil prices. Earnings strength should be apparent in financial, large-cap technology, aerospace, railroad, biotechnology, and cyber-security stocks.

In any case, the broader market’s been in a kind of consolidation since last September, and it would not be surprising so see the market’s churn last right into the second quarter.

Earnings and corporate outlooks are the most material information and while it is still early, reporting among large-caps has been fairly positive. Naturally, this doesn’t mean the stock market will appreciate near-term. It’s already done so, and a new catalyst for the upside seems elusive. Slow growth is what’s expected at this time.