Expanding Margins: Enjoy It Cautiously While It Lasts

SocGen confirms in Barron's what I was suspecting. While companies were beating EPS estimates in 1Q, they were falling short on revenue projections - i.e. margins were expanding. So margins were expanding between 2003 and 2008 when there was expansion, and margins are expanding now when there is contraction. That is not possible beyond a couple of quarters.

The next fall in the markets is going to come either from revenue / earnings shortfalls in 2Q (July), or if something happens in the commodity / currency complex (oil goes above 80 if dollar keeps falling). People are bullish and afraid to miss out on the wonderful 2010, and it is unlikely that a couple of bad macro data points are going to derail the optimism for the time being.

So, we need to enjoy while it lasts, with a firm eye on the exit door.

Comments

[Old Trader:]

Or "C"...all of the above.

"The next fall in the markets is going to come either from revenue / earnings shortfalls in 2Q (July), or if something happens in the commodity / currency complex (oil goes above 80 if dollar keeps falling)."

May 26 01:38 AM