Solid Earnings Aren't Good Enough for Fickle Investors

CNBC.com

Corporate earnings may be hot, but Wall Street is not.

Photo: Oliver Quillia for CNBC.com A trader at the New York Stock Exchange.

As a solid majority of companies have beaten expectations, stocks have responded in muted fashion with major averages dropping below the breakeven point for the year and some analysts talking again of the long-awaited market correction.

Even Tuesday's market gains were seen more a function of an unexpected rise in consumer sentiment, as companies reporting earnings had mixed results in their stock prices.

Jeff Cox
Staff Writer
CNBC.com

So what's not to like about companies surprising to the upside by a nearly 4-to-1 ratio?

"Expectations have been rising for the market overall," says Gary Flam, portfolio manager for Bel Air Investment Advisors in Los Angeles. "It seems like over the last month the definition of risk changed from losing money to missing the next move higher. You saw a shift from fear to greed. All the news of the last week did was highlight there is still uncertainty out there."

But the news to which Flam refers is not the news from earnings but rather other events that overshadowed the earnings reports.

China said it was tightening lending restrictions; President Obama announced a move to clamp down on big banks; a Republican shocked Washington by winning the Massachusetts Senate seat held for 40 years by liberal lion Edward "Ted" Kennedy."

With all that noise in the market, it was tough for any earnings optimism to seep through.

"The 800-pound gorilla in the room...was Brown being elected to the Senate, which means it is highly likely we will have nothing going on," says Dirk Van Dijk, chief strategist at Zack's Equity Research. "Is the market now saying we might not like everything that Obama is proposing but we need to do something?"