So Your Company Is Doing Well? Sell! Good Earnings Still Could Mean Stock Drop
It is earnings season again - that quarterly exercise in futility when investors not only have to figure out how a company did but also how a company did in comparison to what Wall Street was expecting it to do.</br></br>Here's a rule of thumb on how stocks will react to earnings reports, as seen by a top Wall Street trader. "If there is any disappointment, your stock gets shot. If your earnings are what were expected, your stock gets maimed. Only if earnings are substantially better than expected does a stock go up," he explained.</br></br>Take Intel Corp., for example. The electronics company reported excellent profits last week that were around what the pros were expecting. Nevertheless, the company's stock declined more than $1 per share on the day the profits were reported.</br></br>Some stocks aren't treated even that well. Merrill Lynch & Co. reported sharply higher earnings last week. And the profits were well above Wall Street expectations. Yet the brokerage firm's stock declined rather sharply the day of the announcement.</br></br>Stock prices are higher mainly because investors can't find what they consider a comparable return in any other investment. This is likely to continue until either interest rates rise to attractive levels or something happens to stocks that makes them unattractive.