After a majority of companies on the S&P 500 have reported earnings for the first quarter of 2009, a tentative verdict has been reached: things aren’t as apocalyptically bad as we thought they might be. Sixty-five percent of companies in the aforementioned majority beat their analysts’ expectations.
Even areas of the economy that were expected to be hit the hardest e.g. sit-down chain restaurants like Cheesecake Factory, which reported stronger than expected profits, proved that profitability is not impossible, even during a recession.
Overall, strength in these companies points to a renewal of strength in the economy. This, coupled with the rally that has been taking place in the markets for almost two months, gives a pretty good precursor to a bottom in the economy.
The market is a leading indicator, which is generally thought to be ahead of the economy by about six months. This means we could see a bottom in the economy as early as the beginning of quarter three of this year.