Stock Market Second Quarter: What Earnings Say About This Market

what earnings say about this marketThe stock market’s second quarter is over and reporting is lackluster at best. While it’s in the very early days, so far the numbers are mostly coming in soft—disappointing on at least one financial metric.

What we’re also seeing is confirmation of existing full-year outlooks and good expectations for 2016. The stock market may keep trading sideways right into the fourth quarter this year. I wouldn’t be surprised at all if this market doesn’t do anything until the end of 2015…and then bounces higher going into 2016 as investors bet on corporate outlooks.

Without question, however, the numbers are pretty uninspiring. And what they don’t do in my mind is justify new buying currently, especially in a market that’s already gone up.

What Two Big Benchmark Stocks’ Results Say About the Stock Market

Two of the earliest reporting issuers before an earnings season gets into full swing are FedEx Corporation (NYSE/FDX) and Oracle Corporation (NYSE/ORCL). (See “Stock Market Analysis: FedEx and Oracle Falter on Earnings.”)

These are both good benchmark companies, as they are obviously representative of the consumer freight business as well as spending on information technology at the government and corporate levels.

Both of these companies disappointed with their financial results. Oracle got a solid 10% haircut on the stock market after reporting its numbers, while FedEx fared just a little better.

But what corporate reporting signals to me is the lack of consistency in regard to economic business conditions. There is no broad-based economic growth; just pockets of some industries and specific countries doing better than others—perhaps due to their own specific business cycles.

Big Brands, Mediocre Results

Another important benchmark company whose financials offer insight into the general economy is Paychex, Inc. (NASDAQ/PAYX).

The payroll/benefits administrator basically met Wall Street consensus with its latest results. Top-line sales improved eight percent compared to the same quarter last year to $692 million, while earnings and diluted earnings per share grew 10% comparatively.

In its current fiscal year ending May 31, 2015, Paychex expects its total sales to grow seven to eight percent over the most recent fiscal year with an eight to nine percent improvement in its bottom line.

All in all, the company’s numbers weren’t bad, but they didn’t provide a big catalyst for new buying of the stock.

Another disappointment to the Street was Micron Technology, Inc. (NASDAQ/MU). The company’s share price tanked after what’s been a tough year for the semiconductor company.

The results don’t necessarily bode well for Intel Corporation (NASDAQ/INTC) either. This position has been drifting lower on the stock market since the beginning of the year. Intel reports mid-July.

Corporate Earnings: What Can We Expect for the Rest of 2015?

While not unexpected, corporate reporting, which should continue to show a material effect from global currency translation, is uninspiring like the first quarter.

Earnings expectations have come way down this year and, for the most part, I think they justify flat stock market conditions.

On their own, the numbers so far aren’t strong enough to justify a rising stock market. This is especially the case after two full years of capital gains and valuations that are full.

Accordingly, I think it’s very reasonable not to expect much from this market near-term. You can’t count on capital gains this year; perhaps a little bit in the fourth quarter.

Dividend income is going to be in the returns this year. But, even with continued monetary policy that is highly stimulating, stocks can’t go up in value forever.

And besides, they’ve already done so. This is a market just trying to find its new equilibrium.