# US earnings guidance is looking ominous



## james4beach (Nov 15, 2012)

It's impossible to predict downturns of course, but Bloomberg is pointing out that many companies in the S&P 500 are giving earnings guidance which is now below analyst estimates. That means that negative earnings surprises are likely coming.

The group of companies giving downward earnings guidance has, historically, been strongly correlated with the S&P 500 index.

Until now, upward earnings guidances were justifying the rally and the high valuations. The index went up based on the assumption that stronger earnings are coming (because the market is forward-looking).

Anyway... doesn't really matter for passive index investors, but it's possible that earnings may be weakening. Earnings guidance is the earliest indicator of an earnings slowdown. If weaker earnings *actually come* -- which hasn't happened yet -- that could really hit the market.


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## doctrine (Sep 30, 2011)

This is just the typical game that happens almost every quarter after earnings season, and has come more pronounced recently. S&P 500 companies actively downplay earnings after earnings releases to get lower analysts estimates for the next quarter. Then, it makes it easier to beat average expectations. It's a big game. A high earnings beat rate is biased in the system as a result. It means that the "new normal" for a good earnings beat ratio is probably 80% - it was 90% or higher in the last quarter.


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## AltaRed (Jun 8, 2009)

That may not be true for the coming quarter given the continuing (and sometimes increasing) impact of the Delta variant on supply chain shortages in a number of countries, and retrenchment of consumer spending. I am guessing 3Q earning results will be flat and the S&P500 will back off still more from its peak. The bigger question will be whether 4Q will be more of the same and the S&P500 could hit correction territory.

I am assuming no more than flat from this point onward through the end of the year, and perhaps another 2-5% decline if 4Q doesn't start to look stronger. Probably a healthy outcome given the past 18 months.


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## MrMatt (Dec 21, 2011)

Well we still have supply chain problems, and massive COVID handouts are slowing down, I'm not too worried. 
I think all this is expected.


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## m3s (Apr 3, 2010)

doctrine said:


> This is just the typical game that happens almost every quarter after earnings season, and has come more pronounced recently. S&P 500 companies actively downplay earnings after earnings releases to get lower analysts estimates for the next quarter. Then, it makes it easier to beat average expectations. It's a big game. A high earnings beat rate is biased in the system as a result. It means that the "new normal" for a good earnings beat ratio is probably 80% - it was 90% or higher in the last quarter.


Quarterly results made sense in when stock prices were transmitted by newspaper or something

It makes no sense in the information age


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## james4beach (Nov 15, 2012)

Could be an interesting week. US futures down very sharply. Wednesday is the Federal Reserve meeting, too.


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## m3s (Apr 3, 2010)

2 federal elections, 2 monetary policies (kick tha can again j pow) 2 debt payments for evergrande

debt ceiling? what ceiling? raise the roof

europe and asia open red


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## james4beach (Nov 15, 2012)

m3s said:


> 2 federal elections, 2 monetary policies (kick tha can again j pow) 2 debt payments for evergrande
> 
> debt ceiling? what ceiling? raise the roof
> 
> europe and asia open red


This is what I love about markets though. We have no idea if Friday will be higher or lower than Monday. So much unpredictability.


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## m3s (Apr 3, 2010)

james4beach said:


> We have no idea if Friday will be higher or lower than Monday. So much unpredictability.


China is unpredictable

US and Japan will reload the printers - save the poor bankers screwed by unforeseen circumstances


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## Thal81 (Sep 5, 2017)

The September dip is finally here...


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## doctrine (Sep 30, 2011)

It's predictable that September is unpredictable. Historically it is the most volatile month. Don't get shaken out before the classic Nov/Dec rallies.


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## MrMatt (Dec 21, 2011)

doctrine said:


> It's predictable that September is unpredictable. Historically it is the most volatile month. Don't get shaken out before the classic Nov/Dec rallies.


They've been printing cash and throwing it around like crazy for the last year, now they're talking about slowing down the party, of course there is going to be disruption.
But when people end their COVID party, and get back to work, we'll be in better shape than we are right now.
I'm hitting my snooze button for a month on investing.. I want to buy some hardwood floors now that the prices dropped ($4/sq ft for some nice hickory!)


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## kcowan (Jul 1, 2010)

MrMatt said:


> Well we still have supply chain problems, and massive COVID handouts are slowing down, I'm not too worried.
> I think all this is expected.


Plus all the banks have been reducing their loss provisions due to Covid. Maybe they have not see anything yet.

I am not surprised that Morneau jumped ship and that Mark Carney is still on the sidelines waiting to to be called to replace the actor-in-chief.


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## MrMatt (Dec 21, 2011)

kcowan said:


> Plus all the banks have been reducing their loss provisions due to Covid. Maybe they have not see anything yet.
> 
> I am not surprised that Morneau jumped ship and that Mark Carney is still on the sidelines waiting to to be called to replace the actor-in-chief.


I'm not sure about loan loss provisions, for some, like myself, my finances improved dramatically.

I'm not sure Mark Carney wants the job, he could have any job he wants, why would he want to wade into politics?

Right now he's an executive at a massive, politically connected, pseudo private equity firm. That's where most former politicians hope to end up.


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