Every quarter the stock market plays the “expectations game”. Stock analysts (there a lot fewer these days) make estimates for corporate earnings and the company managers try to deliver earnings results that beat the analyst’s “expectations”. If company earnings are better than “expected” the stock will go up, if they are worse, the stock usually falls. What does that mean for your long-term investment strategy or goals? Nothing, zip, zero, and zilch.
Resist the urge to play the quarterly earnings expectations game with the stock market and focus on having realistic expectations for your long-term investment plan. As is often the case with the stock market, expectations are always too high or too low, seldom realistic. A few months ago when it seemed like the economy and stock market was falling off a cliff, we urged our investors to stay in the game, and pointed out realistic reasons for optimism in the months ahead. The forward looking market has responded with a nice rally.
Even though the current crop of earnings has been better than expected, earnings are still declining, and most companies are still experiencing sales declines. As we have pointed out there are a few positive signs, but the economy still has some mending to do in the months ahead. We are encouraged by the signs of improvement but urge investors to maintain realistic expectations in the months ahead. Expect a sideways market for the next few quarters.