A CONCERNING Q3 EARNINGS TREND
It’s only been 10 days since I updated my Expectation Ratio, but as the bulk of the S&P 500 has started to report earnings, the trend is clear. The caution that the ER was predicting is clearly coming to fruition despite very healthy earnings overall. Remember, the ER is meant to be a forward looking indicator of what’s to come in terms of future expectations so the caution in corporate guidance is not unexpected given the sub 1.0 reading in the ER.
In a recent Yahoo Finance video Nick Raich of Key Private Bank discusses this reality. He notes that the current quarter is fairly good, but that the Q4 and 2012 estimates are being cut as earnings season go on. He calls this a concerning trend as it is consistent with a market where analysts remain overly optimistic about the earnings potential for US corporations. He notes that this makes the market potentially risky as any exogenous shock could potentially cause a drastic earnings decline that catches analysts and investors off guard.
Source: Yahoo Finance
This market is being bid up on hopes, lies and spin.
US is on the verge of recession, Europe is in recession and there is no solution to fix the European banking crisis.
When the ‘news’ comes out later today and the market is disappointed, watch out below. This is a great time to cover ‘long’ positions.
“news’ comes out later today”
You might be right,but really my experience is that it is rare that “a day” is the right trigger to completly change one’s exposure in any direction.Indeed acting on a single days events usually ends up with being shaken out of an going movement.I prefer to look at continuing weekly action and move by increment.
well said…sc
Thanks for the update, Cullen
Look for nothing from the EU. Very likely, we will hear about a need to delay until next week. EU leaders are probably working very hard on the excuse for the delay.
Over here in Europe, another very worrying trend in the current Q3 earning season is the number of lay-offs announced, from a firm like Novartis who is nevertheless very good financial shape, to more cyclical names like the french automakers (Renault, Peugeot), to the banking industry, I’ve not heard any positive comments on the employment front. Cost-cutting, cost-cutting, cost-cutting, primarily through headcount reductions.
The EU is home to the greatest can kickers in the world, don’t count them out- yet. Markets seem to want to believe so I think they will be able to do just enough to keep hopes alive but it looks more and more likely this will end badly and soon. Maybe “certain” would be a better way to put it.
The EU bureaucrats-Markets marriage follows the blind cheating spouse paradox. When the spouse been cheated on (the market) just doesn’t want to find out the truth; (s)he will believe the most outrageous lies that cover up the love affair.
You’ve nailed it Octavio. I’ve met a few of those. I got another one for how it ends. Sort of like a guy who keeps patching a leaky roof because he doesn’t want to spend the money on a new one. When the old roof finally collapses he truly can’t afford a new one since he has spent more on patches than a new one would have cost.
http://researchaffiliates.com/ideas/pdf/fundamentals/Fundamentals_Oct_2011_The_Long_View_Building_the_3-D_Shelter.pdf
Robert Arnott from Research Affiliates has a good piece on inflation…and asset allocation in his missive sent out today. I agree with Cullen on the earnings trends and SC.(anonymous was me.not logged in)
In terms of things to do Rob Arnott provides some meaningful solutions to those who are not traders but looking for longer term advice here.
Hello VII
Do you have any opinion/view on today’s action of the US$ and Bond Yields both risin? Is there an indication anywhere that a trend is beginning in these 2 sectors?
http://stockcharts.com/freecharts/candleglance.html?UUP,TBT|B
Too many folks were – IMO – short and then a small push higher forces a lot folks to cover their shorts.
Thanks BV/W2
Looks like the Dollar has to go further south now … maybe 72-ish … Santa’s rally is apparently on today.
Brian- I don’t have an answer to that question.
I did add to my fixed income slightly. On Monday. I’m preparing for the next leg down. I would need sentiment to go to extreme measures bullish to really get short. So I’m incrementally adding to Bonds now as the yields go up. I tried to short 10% of allocation at 1255 and we had problems operationally. I’m glad I didn’t only because sentiment is not bullish enough yet for me to be confident to hold this.
I don’t have anything yet to add to your observation except what you already have figured out.
Thanks VII
Wow… the US$ spiked and then plunged today but seems to still have support. I guess we have to wait on Euro News to see if the US$ will be the next go to safehaven… and if yields go up (bond prices down)… I’m trying to figure out if this gold and silver rally has legs or if it’s a trap… but again.. we seem to be tied to Euro news. Thanks.
You don’t need jobs, just a better understanding of the monetary system and a printing press
Cullen just a few months ago you said the economy would be booming by now. What do you think changed things?
May 26, 2011
Ignore The “False Growth Scare” And Expect A Booming Economy Later This Year
http://www.businessinsider.com/false-growth-scare-2011-5
Who gets to write the headlines for BI?
BI: Ignore The “False Growth Scare” And Expect A Booming Economy Later This Year
PragCap: PREPARE FOR THE “FALSE GROWTH SCARE”
And after reading the article, I see the difference between the two.
BI changes my titles. I never used the word booming anywhere. I’ve been pretty consistent in my idea of muddle through.
i went to read it too – same old Cullen in the article – mismatching and outright bizarre headline. glad to see our emperor still has cloths
on topic, i’d like to see a close up of the expectations chart – hard to read and looks important – before i google it – any easy source?
Testing…123…testing…
AHA! I am so IN now. Couldn’t figure out how you were all doing that.
Release the hounds!