It May Be Impossible for Earnings to Satisfy the Bulls Right Now

  • Banks lag for second day even as JPMorgan, BofA top estimates
  • Stretched valuations, tighter labor market pose headwinds

While nobody doubts earnings are soaring, the question is whether they’re soaring enough to restore order in the stock market. And while there are signs investors expect them to, right now the verdict is worrying.

As of Monday morning, the impact of early income reports had been muted. Stocks were mostly falling after companies released results, almost regardless of how good they were. Among 29 members of the S&P 500 that announced earnings through Friday, even those that beat analyst estimates saw shares trail in first-day reactions, data compiled by Wells Fargo & Co. showed.

Bulls got a major affirmation Monday night, when Netflix shares jumped about 6 percent after the company signed up more subscribers than analysts forecast in the first quarter.

Still, should the trend hold, it would be bad news for anyone hoping earnings would calm markets where turbulence has by some measures doubled from the last two years. Jim Paulsen, Leuthold Group’s chief investment strategist, says the reactions are a sign stocks got ahead of themselves and remain overpriced.

“There is so much impression on Wall Street that earnings is what it will save us, and it’ll return mojo to the market. I’m less convinced,” Paulsen said in an interview on Bloomberg Television last week. “I very much agree that earnings are going to be spectacular. It’s just that we may have already been paid” through previous equity gains, he said.

Early returns show lackluster or flat-out bad reactions in what’s forecast to be the fastest earnings…

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