| Earnings season is a funny time. While it should be about the valuation and earnings growth of corporations, in reality, it's perceptions and met (or unmet) expectations that actually drive stock prices. Yes, it's a temporary phenomenon, but not so temporary that one can afford to simply ride out an adverse move.
 With that in mind, we're just as interested in the ratio of earnings 'beats' to earnings 'misses', or shortfalls, as we are total profits. And though Alcoa's announcement earlier this week was the unofficial kickoff to earning season, we actually started to see a significant number of fiscal Q2 (not necessarily calendar Q2) reports roll in well before this week; we want to track those beats/misses as well.
The nearby table tells the tale so far. The pre-Alcoa numbers are in gray, while the post-Alcoa numbers are in white. Totals for all of as well as just the post-Alcoa numbers are at the bottom.
For reference, 60% to 65% of companies usually top analysts' estimates, while about 20% to 25% fall short of estimates.... which is pretty much where we are so far.
In other words, this earnings season so far is a pretty typical one.
Stocks are in the red today just because investors are choosing to see the glass as half empty. Of course, that's largely the effect of fixating on the most recent news - probably the alarming consumer sentiment number, in this case. Another batch of good news is apt to swing the pendulum in the other direction again.
We'll keep tabs on this scoreboard each week, along with another (and perhaps more important) number.... actual earnings for the S&P 500, in dollars.
What you're seeing on the other nearby chart is the S&P 500 Index, its projected operating earnings per share (forecasted earnings are in yellow), and the associated P/E ratios based on the last price of the S&P 500 index.
 For Q2, the S&P 500 is expected to earn $19.71, translating into a twelve-month operating P/E of 14.9 based on today's value* ... dirt cheap by historical standards. And just for the record, the S&P 500 earned $19.38 last quarter, so $19.71 is very much within reach.
Even a meet or a beat for the overall market, however, may not be enough to keep the buyers busy.
As we said above, perception means more during earnings season than actual valuation, and that perception is not just fueled by the beat/miss ratio, but also by the accompanying outlooks for Q3 and beyond. On the other hand, perceptions can be wrong, which is where your opportunity lies.
If the market defies the skeptics by earning more than $19.71, and we see the normal numbers of beats and shortfalls, and then stocks fall anyway? It'll be bargain-buying time for the long-termers. If earnings fall short of $19.71, then the doubters will be proven right, and stocks will be in serious trouble. Unfortunately, being 'a little under' isn't likely to mean stocks just fall a little - any shortfall is apt to mean a big tumble. Welcome to emotion-driven trading.
Just don't forget that even no growth at all would still mean earnings are holding steady at generally-healthy levels - there are worse things that could happen. In a case like that, stocks are still worth owning for the long haul.
Either way, it's just too soon to say this earnings season is going to be good or bad - we only have the benchmark of $19.71 right now. We should have a clearer picture of things within a couple of weeks, including whether or not investors are seeing the glass as half full or half empty.
Stay tuned for future updates to the scoreboard.
Helping you get more out of the market,
James Brumley
Editor - Small Cap Network Newsletter
*We're reliant on Standard and Poor's for updates to this data. Since it takes them time to gather it, these numbers aren't always going to be 'as of today'. Luckily though, today they're 'as of' July 15th, which is more than current enough to start making use of. On the other hand, only a tiny fraction of the S&P 500's companies have posted Q2 profit numbers; the earnings projections will be updated as they become actual results.
| 
