After today's market close there was a flurry of earnings announcements, some
of which were way low. Not bad, mind you. In fact they were pretty good. But
because Wall Street analysts were expecting more in order to justify current
stock prices, the disappointments led to big price declines in the aftermarket:
SAN FRANCISCO (MarketWatch) -- Google Inc. shares fell in the extended session
Wednesday after the company's quarterly earnings disappointed, while International
Business Machines Corp. shares declined on a revenue miss.
Google Class A shares declined 6% to $529.84 while Class C shares dropped
6% to $523.50 after the Internet giant's first-quarter profit rose, but fell
short of Wall Street estimates. Trading volume was moderate for both classes
of stock.
Analysts expected Google to report adjusted first-quarter earnings of $6.36
per Class A share on revenue of $12.41 billion, according to analysts surveyed
by FactSet.
IBM shares fell 3.8% to $189 on heavier volume after the tech bellwether's
quarterly revenue fell short of Wall Street estimates and earnings were in-line.
IBM had been forecast to report first-quarter earnings of $2.54 a share
on revenue of $22.93 billion.
American Express Co. shares declined 1% to $86.55 on moderate volume after
the Dow component's quarterly revenue fell short of Street estimates of $8.35
billion.
Is this a sign of things to come? Almost certainly. Because US equities are
now at record levels, anything less than perfection is considered a reason
to sell. And in a world where China is slowing down, Japan just enacted a commerce-killing
sales tax increase and the US is barely growing, huge increases in sales or
earnings by one giant multinational necessarily come at the expense of its
competitors. So someone has to disappoint, and the increasingly-skittish market
is going to overreact to the news.
The companies profiled in the above article, for instance, are generally having
pretty good years. Google's revenues were up 19%, or about $2 billion year-over-year,
which is nothing short of amazing for a company that size. IBM was down a bit
year-over-year but is still huge and highly profitable. Yet both companies'
stocks are getting whacked.
This is neither unusual nor unexpected. It's just how things work at market
tops. And based on how things went the last couple of times valuations reached
this level, the stress (or fun, if you're a short seller) is just beginning.
