Earnings reports are coming in. As usual, companies are exceeding analyst forecasts. This has now been the pattern for several years. It is not surprising, since the economy has been strong, corporations got lean and mean, and balance sheets have improved.
There is absolutely no sign that earnings estimates are inflated. Companies seem cautious in their outlook, as they have been for several years now. Wall Street pundits think that this means weakness, since the young money managers are all schooled in what happened in 2000. They are fighting the Last War.
Take a look at the conclusion from The Big Picture and also take a good look at the chart. Read the Barry Ritholtz analysis, and then come back for our take.
Earnings season gets under way this week, and so far we've seen less earnings beats than in prior quarters since the 2003 lows. With just 11% of SP 500 companies reporting, 62% have beaten estimates, while 19%have missed estimates. Analysts have been …
The chart covers only the period of double-digit earnings growth. During this time stock prices have dramatically lagged the fundamental increase in earnings while interest rates were low.
Barry writes as follows that "Analysts have been overly optimistic compared to past quarters." Wow! Earnings are beating estimates by 62%. The chart shows only the time period in which the earnings growth has been in a record-breaking string of double-digit gains.
A student in a journalism class might write that analysts were a bit more pessimistic this season than they were in prior quarters (and therefore closer to reality), but that pessimism was still the order of the day.
Why not just report data objectively? Why not look at a long-term history of earnings results versus expectations, rather than chopping off a chart that shows only the historic gains of the last few years?
And how does 62% beats versus 19% misses indicate something wrong with earnings growth?