Bulls will not be tamed by weak earnings

Despite a mediocre earnings season and signs of an overbought market, Wall Street bulls are likely to remain in control next week.

So far in this earnings season, 352 companies in the S&P 500 have reported results, of which only 63 per cent have beaten Wall Street estimates. This compares to a beat rate of about 70 per cent on average for the past four quarters and would be the lowest since the fourth quarter of 2008.

Usually, strong earnings are associated with stock market rallies and improved investor sentiment. But despite this season's relatively weak results, the S&P is up nearly 7 per cent for the year, and the index has posted gains for every single week in 2012 except for a 0.2 per cent loss this week.

"The demand for risky assets is strong. There is steady buying in the market, and the money is constantly being put to work," said Brian Lazorishak, portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.

"The market is sort of overlooking the weak 2011 earnings and looking forward to an improved 2012 earnings season... It's like a green light to investors to get into risky assets."