Why Q1 Earnings Season Has Been More Bullish Than It May Seem

In Friday morning’s PreMarket Prep, The Earnings Scout’s Nick Raich discussed the bullish implications of company guidance so far this earnings season. Raich said that, despite the headlines of earnings misses from high-profile companies like Alphabet Inc GOOG GOOGL and Microsoft Corporation MSFT, traders have to look beyond the first layer of earnings numbers to understand just how positive the news has been.

Raich told Benzinga that the key to this earnings season is the market’s extremely low expectations.

“A lot of people were too bearish going into first quarter earnings season because they looked at the absolute level of growth that was forecast to be down about nine percent for earnings,” Raich explained.

“Those weak numbers were priced into the market back in January, so if you were bearish on stocks in the month of April because earnings for the first quarter were going to be down nine percent, you’re too late.”

Instead of looking to the past, Raich said investors should be looking at the changes in future earnings growth expectations from the companies that have reported Q1 earnings so far.

“What we’re seeing is, about 35 percent of them have lowered their estimates by about 7 percent for the second quarter. Now that sounds bad that the estimates are coming down, but not until you realize that in the prior earnings season, 72 percent of those same companies were lowering by about 3.7 percent. So what we’re seeing is less negative,” he told Benzinga.

Raich said that this type of positive delta is the reason why stocks have rallied so hard off of February lows.

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