Don't write off US earnings yet: Schaeffer's Investment

Spain has become a big bone of contention in Europe. However, global markets reacted positively to the enthusiastic response given to the Spanish bond auctions yesterday. US stocks also got a further boost at the open after a solid round of corporate earnings from the likes of Goldman Sachs Group Inc and Coca Cola Co.

Ryan Detrick, chief technical strategist at Schaeffer’s Investment tells CNBC-TV18 in an interview that earnings estimates for this season by market analysts have been too low. “I have seen some estimates that say earnings growth might be negative.”
While it is about a week old, nonetheless majority of big companies are beaten which has been at least a positive so far today. Detrick thinks it could continue and there is still the next couple of weeks as the corporate earnings season kicks into gear. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: We have data that started looking weaker and weaker, earnings that seem to be holding up and a market that is rebounding?
A: You are exactly right. The last couple of weeks had some disappointing economic data specifically the consumer confidence and the jobs data in the US. But one thing we are encouraged by at Schaeffer’s is we think expectations for this upcoming earnings season are just a little too low. Just back in September, it was expected to be 10% year-on-year (YoY) Q1 earnings growth.
The start of the year, the Q1 was 4%. Now coming into it, I have seen some estimates that say earnings growth might be negative. In other words, we think this is simply too low of expectations. Now if you look at what happens so far earnings season, majority of big companies are beaten and that has been at least a positive today and we think it could continue. We have the next couple of weeks as earning season kicks in the gear. Q: How are you factoring in this whole Spanish bond yield story because we have seen some panic around that the last few days? Today the market seems to be calmer because that auction in Spain was fully subscribed and the demand was rather strong?
A: You are right and the Swiss Spain of course is the absolute wild card. Though so much of demand of this auction has been too bad specifically today is being good. So specifically from the US point of view, we still think the issues in Europe are where we all know where they are but overall on a relative strength basis the US has held up better.
So if Spain spirals out of control, I don’t think it will but if it did, we still think the US will probably be a place potentially people go to for safety because again our economy is slowing a little bit here. But all in all we still think the US growth is still there. It is still placed potentially for a lot of price persuasion in terms of equity prices over the coming year.