Lessons from this reporting season

The February reporting season was predictably tough, as evidenced in the price action and earnings downgrades of individual stocks. For every company that made a fifty-two week high, two made an annual low. The market seemed to set the bar extremely high, severely punishing companies that disappointed, yet showing no immediate appreciation of strong results. Downward revisions in aggregate market earnings estimates for fiscal 2016 have continued but thankfully, not accelerated. Investors need to remain discerning in their stock picking. Consumer discretionary and healthcare companies have delivered the better results, and unsurprisingly the natural resource sectors suffered the largest declines in their profits. While the mining and energy sectors have taken a lot of cost out of their businesses and are genuinely cheap, commodity prices are likely to range trade for at least two years, limiting their ability to grow profits.