IT'S THE GUIDANCE, STUPID

A few themes have developed so far in this earning season, although still early. The most obvious is that while earnings were generally pretty good, most company are very cautious on the outlook for next quarter and second half of the year, and stocks got hammered in these cases. As a result, owning quality names (i.e. names usually produce quality and consistent earnings) are not necessarily safe, while positive outlook and guidance are given premium. Beating this quarter's number is not sufficient, and cautious guidance is sold off. This illustrates how difficult this market is. It is difficult to figure out the quality of the earnings already, and it is almost impossible to have a good sense of future earnings, particularly for small investors. This is the reason why market reaction to this earning season has been largely negative, despite the decent numbers. The weak outlook clearly indicates that the economy will likely, even probably, slow down meaningfully in the second half of the year. There's not too much place to hide if US economy, and global economies, slow down meaningfully in the second half of the year. The only relatively safe place, I emphasize RELATIVE, is healthcare and large pharmas, which have been the best performance sector in this early earning season.