North American stock markets have been climbing higher for the past eight weeks and investors who blink miss the non-existent corrections they are waiting for.
It all seems so easy, and with earnings season in the U.S. kicking off this week, there appears to be little reason to worry, at least from the bottom-line or profit side of the picture.
What investors will be keying in on, however, will be the top-line revenue growth and, perhaps more importantly, the conference calls in order to assess the business outlook of the senior executives.
The estimated profit growth for the S&P 500 index for the first quarter of 2010 is a healthy 37 per cent from a year ago, according to Thomson Reuters, with financials, materials and the consumer discretionary sector leading the way.
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"It's amazing how much difference a year makes," said Tony Genua, vice-president of research for North American equities for the AGF American Growth Class Fund.
It will be interesting to see which companies can generate top-line growth to go along with improving profit margins, Mr. Genua said. He expects companies' outlook will remain conservative.
"I believe guidance will still be reserved for the balance of the year, which could cause some people to be nervous," he said. "That is what happened in the last quarter. Companies want to ensure that the bar is not set too high."
As a result, expect a cautious assessment of the evolving landscape, Mr. Genua said. "In my opinion, we are not about to go back to excess any time soon."
Market bears have been warning investors that stocks have gotten far ahead of the recovery, with unemployment high and the government mired in debt.
But by the end of this week, investors should have a good picture of the economy with a healthy cross-section of companies reporting. Today, Alcoa Inc. reports; tomorrow, semiconductor maker Intel Corp. and railroad operator CSX Corp. release their results; on Wednesday, JP Morgan Chase & Co. and fast-food retailer Yum Brands Inc. step up; on Thursday, Google Inc., Advanced Micro Devices Inc. and chemical maker PPG Industries Inc. report; and the week ends with leading companies such as the Bank of America Corp. and General Electric Co.
Only 19 companies report this week, while 100 report next week, said John Butters, director of U.S. earnings research for Thomson Reuters.
While the U.S. banks are beginning to bounce back, Mr. Genua does not expect they will be the leadership group as the stock market continues to recover. He thinks the leaders will still be in the technology and industrial sectors, including industrial giants such as Boeing Inc. and McDermott International Inc., which is spinning off its Babcock Wilcox unit, a manufacturer of nuclear, fossil energy and other industrial equipment.
The wild card on the downside remains the sovereign debt crisis in Greece. But lofty oil and copper prices suggest that the global recovery remains intact, said Benjamin Reitzes, an economist with BMO Nesbitt Burns Inc.