• Are Expectations Too Low This Earnings Season?

    by  • July 9, 2013 1:55 pm • Breaking News, Broad Market Analysis, Quick Hits • 3 Comments

    Alcoa kicked off earnings season today and once again it looks like overall expectations are too low.  This is a common theme we’ve seen the past few years.  Analysts get worried, cut their forecasts, and sure enough earnings come in better than expected and we rally.

    Looking at the 2Q, expectations are for year-over-year growth of less than 1%.  Here’s a great chart from CNNMoney showing this.

    For a break-down by sector, my pal Brian Gilmartin at Trinity Asset Management (and fellow Xavier grad) shows what the current forward expectations are here.

    Then Barron’s over the weekend noted these killer stats.  Again, to me, stats like these are bullish because it sets a low bar, but not everyone takes it that way.

    Citigroup strategists wrote recently that preannouncements were the most negative since 2009, when the global economy was at its nadir, after the 2008 financial meltdown.

    Citi counted 6.5 negative preannouncements for every positive one, Tobias M. Levkovich, the bank’s head strategist, says.

    Lastly, at the start of the year, expectations for 2Q earnings growth was 9%, before dropping to 7% by the first of April.  Now it sits less than 1%.

    Say what you want, but to see that we are in the midst of the most negative preannoucements since 2009 – I love that.  Remember, 2009 things looked horrible on the economic front, still it was a great buy from an equities point of view because expectations were simply too low.

    I noted last week why sentiment is once again getting too fearful, that coupled with the lowered bar this earnings season could produce yet another strong July rally.




    3 Responses to Are Expectations Too Low This Earnings Season?

    1. rk
      July 10, 2013 4:39 pm at 4:39 pm

      Extending the logic, negative earnings growth projections will be more bullish? I think it will be bullish only if guidance is better.

    2. Dell Spry
      July 10, 2013 11:02 am at 11:02 am

      We are in the midst of a July rally. Are you saying you expect a continued or stronger rally from here?

      • Ryan Detrick, CMT
        July 10, 2013 4:25 pm at 4:25 pm

        Continued strength.

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