The Worst Earnings Season In More Than Twenty-Five Years? (AAPL)(GE)(CSCO)(INTC)(T)(VZ)(MSFT)

The market took big dips in 2001 and 1987. One was due to a national catastrophe and another was focused on Wall St.’s impression that the market had run too far, too fast.

The US experienced a fairly deep recession in 1981 and 1982. By most measures, this lasted for over five quarters. Downturns in 1991 and 2001 where less severe and lasted, at most, six months.

The question now is whether consumer spending has been so badly hurt and the credit markets so badly damaged that earnings could fall at a level not seen since the early 1980s. According to The Wall Street Journal, "analysts estimate S&P 500 operating earnings — income excluding one-time items — fell 11.5% in the second quarter."

To a large extent, whether earnings will be down by 12% or more will depend on the "swing" industries in the economy. It is already a given that auto, airline, and financial numbers will be awful. Retail companies are also likely to turn in bad figures due to drops in consumer spending. Large companies like GE (GE) with broad exposure across the range of several industries may also do poorly.

For the most part, that leaves tech and commodities stocks to pull the average of earnings up. Big oil will almost certainly do well. Whether it does as well as expected may depend more on thin refining margins than the high price of oil.

Tech and telecom are the line of defense that the market hopes will not be breached. Companies which serve the consumer, especially perennial winners like Apple (AAPL) and the providers of tech to big business lead by Intel (INTC), Microsoft (MSFT), and Cisco (CSCO) are among the few companies which could pull the earnings averages for the S&P 500 companies up. Cellular growth will have to sustain AT&T (T) and Verizon (Z)

Tech earnings are a thin line. A pull-back in consumer spending may halt the astonishing rise in numbers at Apple. Tight business conditions could cause large corporations to defer some of their tech spending. A slowing in either enterprise or consumer spending could ding the big telephone companies.

The consumer is already feeling very poor and has closed his wallet. If big business looks ahead and sees poverty, earnings could be as bad as they have been in almost three decades.

Douglas A. McIntyre