So now that we're through the bulk of earnings season, how's it been? I will give you two answers. The first is the one that everyone else will give: mildly disappointing, with lots of companies guiding down.
Then there's my answer. There are two earnings seasons: the domestic companies, almost all of which so far have been spectacular and I think will only get better, and then there are the big international companies that, with the exception of Alcoa (AA), Boeing (BA), Honeywell (HON) and 3M (MMM), have been pretty suboptimal.
The domestics, of course, are all about a comeback in hiring in the U.S. coupled with a decline in raw commodity costs, including oil. It's hard for me to think of any glaring disappointments away from the oil stocks. Meanwhile, the rails, quintessentially domestic, were fabulous.
But the internationals? We have mostly guidedowns. Some of the guidedowns are truly because of the strong dollar and how hard it is to sell product overseas in weak currencies and then have to translate them back to strong ones. You only really understand this stuff if you are a foreigner coming here and experiencing sticker shock when you try to buy something with your pathetic currency, but you get the idea. There are other companies, though, that are hiding behind a strong dollar and are actually doing just OK, chiefly the drug and consumer product companies, almost all of which have been a bummer so far.
But you know what's been so difficult about this earnings season? The height stocks had run to going into it.
The classic case is right from the start: Alcoa. When I look back now from one month ago, I notice that almost every single line of Alcoa's was stronger than expected because it is playing in all of the trends that are stronger than expected: nonresidential construction, aerospace, autos, trucks and turbines. Those are precisely the sectors that are just doing so well that they have popped throughout the period. Think of Eaton (ETN) today. It plays in all those areas and it's been terrific. Same with Honeywell and, to at least one extent, Boeing.
But Alcoa had the misfortune of running right into the quarter. So the great news was a letdown. Honeywell hadn't run that much and was able to break out. Boeing was supposed to miss; when it didn't the shorts were crushed. And Eaton had become a serial misser so it shocked people when it didn't.
3M was just, again, the best in show.
But what's been the worst in show? So far, the pharmaceuticals and the technology stocks. We had begun to believe, for example, that the personal computer space was doing better. So everything having to do with the PC ran.
Turns out personal computers weren't so hot.
We also believed cellphones would be stellar. Again, the stocks ran and the quarters weren't good enough.
We believed that the Internet would be terrific. Again, though, the stocks ran and the only real surprise was that Google (GOOG) wasn't as horrible as we thought.
Big Pharma got crushed by the dollar and the translations were just hideous. It almost didn't matter what they said, but when they did say something it wasn't all that encouraging. So money shifted to biotech until those, too, got bid up to the point where you can see the money shift out of them and into the now surprising industrials.
But now let's put it all together. If your stock ran and the quarter was perfect, it has meant nothing. If it were less than perfect, your stock was annihilated. However, if your stock had been hammered and expectations got too low? Well, even if the numbers were just OK, like the oils, or if they were very good, like Eaton, you have winners, big winners, like the ones leading the rally today.