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Tuesday, October 23, 2012

Earnings scorecard

With about 1/3 of SPX companies reporting we can get some sense of what this earnings season is telling us.  It appears that so far the market is not all that excited.  Here are some charts that might help explain why.


Many of the bigger financial firms have already announced their earnings.  Apparently they did a good job of managing expectations. They actually had good earnings anyway.   INTC had a downright terrible quarter, but did a good job lowering expectations.  Most of the misses are coming in companies that are more affected by the global economic problems then the Financials.

We know that profit margins are at their highest levels ever.  This means future earnings growth has to come through revenue growth as cost cutting just won't do it anymore.  Check out this next chart.


Companies beating revenue estimates is the lowest since back in the dark days of Q1 of 2009.  Apparently the drop in revenue is catching companies by surprise a bit. 

This leads us to our next chart.


All the misses are leading the analysts to project revenue to be negative for the first time since 2009.  This is most likely what the market is unhappy about at the moment.  Will the revenue problems continue?  Check out the next chart.

This chart is pretty telling.


The ratio of negative to positive guidance is skyrocketing this quarter.  It seems a bit unlikely the revenue picture is going to turn around in Q4.  All the more reasons why the market is not real happy at the moment. This is real stock market fundamentals turning down, unlike the last few years.  I know everybody thinks QE was why stock prices went up.  I firmly believe it was fundamentals.  We really did have good revenue and earnings growth.  Why is it so hard to believe that might possibly have had at least a little to do with it.  Prior QE announcements came after crashes.  In the case of QE2, the market had already bottomed anyway.  Is it any wonder stock prices went up after QE?  If the fundamentals continue their current downward path stock prices will follow. 


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.