Investors have seen a nice stock market rally over the last couple of months, but is it a real rally or just a sucker rally? For the rally to be sustainable and considered a real rally we need good corporate earnings reports.
This earnings season is one of the most important and watched earnings season in a long time. Wall Street as well as Main Street is watching company results very closely as these earnings reports will indicate how the economy is doing. Stock markets have seen a strong rally over the last few months, however this rally needs to be backed up by strong corporate results or it will be a long and painful ride back down.
Why Focus on Top Line?
This time around however there is a slight difference in how things are being viewed. Often what matters the most to everyone is the company’s bottom line numbers, how much profit did the company make? However this time the focus is the top line, revenue, how much products/services did the company sell?
The top line is the company’s revenue over the specified period, which can be a good indication of consumer spending. While an increase in the bottom line, net profits, can indicate more revenue and consumer spending it does not do so conclusively, but an increase in revenue can only come from more sales, which indicates more consumer spending. Investors are looking for good revenue results to get a sense of the economic cycle.
So far the reports have been good, we have seen strong results from IBM (IBM ), Intel(INTC ) and Google(GOOG) and even the fragile financial sector has seen positive results; JPMorgan(JPM), Goldman Sachs(GS ) and Citigroup(C) beat analysts expectations.
So far the stock market has been able to hold on to most of its gains over the past few months, but will it continue the strong rally? This remains to be seen, but all signs are pointing to the right direction.