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4/21/2005
First-Quarter Earnings: So Far, Very Good

It is good to know that for the 147 companies in the S&P 500 that have reported first-quarter earnings so far, the average change in profits over the first quarter of 2004 is about 12%. For every company with profits below expectations, 3.8 reported positive surprises.

The actual earnings reported were 2.5% above forecasts.

The surprises were as follows:

But of course, that's not good enough these days. Nor is the 2.5 percentage point differential of predicted earnings yield over the bond yield. It is instructive to check such a differential with comparable figures and subsequent returns in the Fed Model work of Manchester Trading's Tom Downing and the  Spec Duo.

Of interest, too, is that for two years from the end of 3Q 2002 to the end of 1Q 2004, all the earnings seasons showed gains in the S&P. But starting at the end of 2Q 2004, the moves in the first 10 days of earnings seasons have been as follows:

Month (1st 10 days)% Chg in S&P 500
July 2004-3
Oct. 2004-2
Jan. 2005-2.5
April 2005-3

Hats off, the market mistress has found a new way of scaring the dickens out of the weak longs, before going up.

Recall that the S&P 500 was 950 in September 2002.

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