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Earnings Season: Not So Great After All

Last Updated May 19, 2011 1:26 PM EDT

Earnings season is unofficially over. It unofficially kicked off five weeks ago when the first Dow component, Alcoa, reported quarterly profits and unofficially came to an end Tuesday when the last Dow component, Wal-Mart, reported. (Despite the "season" label, someone is always reporting at any given time throughout the year.) So I'm sorry to report that despite mostly good growth and positive color and commentary on the part of company managements, by at least one reckoning, this profit reporting season was kind of lame.

As I wrote last month, if you have a strategic, indexed, asset-allocated plan (also known as investing), you can mostly ignore the short-term quarterly noise of whether Blue Chip Inc. beat Wall Street's top- and bottom-line guesstimates.

Traders, however, must to live to trade another day. That's how a dismal report from Dow component Hewlett-Packard can make it seem as if the world is coming to an end, only to have a good report from Dell make it seem like, hey, maybe we're not doomed after all, kiddos. All in the course of less than a day.

Speculators' earnings mood swings mostly stem from whether or not some important company, some bellwether, exceeded Wall Street's profit and revenue estimates and what sort of outlook management served up.

It's called the "beat rate," and by this measure, we just had the worst one since the market began recovering from its epic crash, according to the good folks at Bespoke Investment Group.

"Pretty much all of the commentary we've been hearing in regards to the reporting period has suggested that earnings season was very strong," says Bespoke. "At least based on the percentage of companies that beat earnings estimates, 'very strong' couldn't be further from the truth."

Of the more than 2,100 U.S. companies that reported earnings through Tuesday, only 59.5 percent beat earnings estimates. "This is by far the lowest quarterly 'beat rate' reading of the bull market, and it's seven percentage points below the 'beat rate' last quarter," Bepsoke says. Have a look at the chart below.

Although it doesn't feel like it because of all the big triple-digit-swing days on the Dow we've had lately, the market hasn't really gone anywhere this earnings season. The Dow is up less than 1 percent, the Wilshire 5000 is down less than 0.4 percent and S&P 500 is essentially flat since Alcoa reported. Add in dividends, and investors came out slightly ahead.

True, speculators have had plenty of other distractions this reporting season, and maybe that's just as well. For those of you who wisely ignored the noise? Congratulations on not letting your emotions take over. Your broker would have made out nicely on commissions, but the value of your holdings would not have changed. That's worth remembering in three months when Alcoa kicks it off again.

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    Dan Burrows, a veteran of Aol's DailyFinance, SmartMoney and MarketWatch from Dow Jones, covers the markets and economy with an eye toward investing for the long haul.