Weekly Market Commentary 4-18-11

Painful Start or Painful Taxes

Tim Phillips, CEO – Phillips and Company

Last quarter, when we were in the thick of earnings season we noted how well the numbers were looking at the top line and bottom line. When all was said and done, Bloomberg’s numbers showed that 72% of the S&P 500 beat earnings estimates. Unfortunately, this quarter’s earnings season isn’t looking so optimistic.

Bespoke Investment Group noted that a number of analysts have come in and revised their earnings estimates downwards over the last few weeks.

Although we are just at the start of earnings season, so far in general, it hasn’t mattered if you beat or missed the numbers you traded lower.

Not listing as a recommendation, but for an example last week Alcoa officially kicked off the earnings season after the close on Monday (4/11); they beat their earnings per share number but missed their sales number. Tuesday the stock opened down 4.84% and closed down 6.02%.

Tax Day Vs. Good Friday

We have two interesting things going on this week: Tax Day (pushed back from Friday due to Emancipation Day) and Good Friday.

Last week’s rough start to earnings season might have been exaggerated due to the Federal Tax Deadline. According to Bespoke, historically over the last 30 years the average performance of the week before the tax deadline has been muted. Last week was no exception, the S&P closed down 0.70%.

Looking ahead though, historically the week after tax day has been much stronger. Over the same time period the S&P 500 has risen on average by 1.10%. We also have Good Friday at the end of the week. Going all the way back to 1928 the S&P 500 has averaged a gain of 0.53% during the 4 day work week leading up to Good Friday. It will be important to focus on companies that report earnings this week to see how they do with these historical tail winds.

A few major earnings reports this week:

• Citigroup (4/18)
• Intel (4/19)
• EMC (4/20)
• Apple (4/20)
• McDonalds (4/21)
• Honeywell (4/21)

This should help determine if this painful start is a sign of what to expect throughout earnings season or if was just the painful effects of taxes.

As always, we appreciate all the feedback we get. Please send your thoughts and comments to: tphillips@phillipsandco.com