By the numbers in the reports, one could be forgiven for a little head-scratching. Yahoo narrowly beat Wall Street expectations by earning something — a penny a share, compared to 11 cents a share last year — and had no good news whatsoever about its continued reliance on the moribund online advertising market. The stock was up $1, or 5 percent, in Thursday's trading.
Motorola also beat expectations by a penny a share, losing $232 million, or 11 cents a share. Analysts had expected a 12-cents-a-share loss. The stock was up $2, or 12 percent, in Thursday's trading.
And Microsoft's great news that it had beaten revenue expectations for the quarter was tempered by the fact that it would also record $2.6 billion in investment losses, bringing their 42-cents-a-share earnings back down to 1 cent per share. The stock popped $4, or 6 percent, in Thursday-morning trading.
You guessed it: Earnings — and the corporate earnings picture for the quarter just past and the quarter to come — are as lousy as ever, but Wall Street's expectations have finally bottomed to the point that a $232 million loss can be a pleasant surprise. In a TIME.com Q&A, TIME personal finance columnist Daniel Kadlec explains why that's the best news he's heard in a while — and why nobody watching at home should try to take it to the bank for a while yet.
TIME.com: What's all the celebrating about?
Daniel Kadlec: When numbers like these don't disappoint investors, it's a measure of how depressed expectations have become. And that's a good thing — that's how you put in a bottom, with realism. Maybe we've taken a big step here.
A big step up?
Well, a morning like Thursday immediately brings out people talking about a V-shaped recovery, for a rally like this to build on itself and the markets to go on an extended tear. But moments of optimism like this are the hallmark of any bear market — and every one's been a fakeout so far.
Of course you can never say for sure, but just because the analysts have finally figured out how bad things are, doesn't mean there's any compelling reason to expect stocks to keep going up.
What's the overall picture right now?
Economically, there are two big pluses — we're entering the time when the first of the Fed's interest-rate cuts should be starting to kick in, and the tax-cut rebates are coming soon. Some retail stores reported some encouraging numbers Thursday as well, and that not only helped goose the Dow but bodes well for consumer spending. On the other hand, layoffs and unemployment is still on the rise.
So the big picture isn't really any different Thursday than it has been for months — the only thing that's happened is that Wall Street has stopped being surprised by bad news. That says to me that a really strong market isn't going to happen until the corporate-earnings picture itself starts to change — end of this year and early next year. Until then, we're just bouncing around the bottom.
I've been saying for months that we were at a bottom, and I stand by that — but I think we'll be here for a while. The good news is that there isn't a lot of risk to getting into the markets now — not a lot of upside, but not a lot of risk either. The risks have been pretty much drummed out by now.