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EXPECTATION RATIO UPDATE

4 February 2009 by Cullen Roche 0 Comments

The proprietary expectation ratio continues to show signs of improvement.  The indicator is the ratio of analyst expectations vs. actual corporate earnings.  The important difference between this indicator and a typical earnings chart is that it includes the psychological side, i.e., the market’s expectations.  Earnings are only a good indicator in terms of what the market expects.  For instance, AAPL can report 30% year over year growth, but the numbers are only as good in terms of the markets expectations.  If expectations are for 35% growth then the quarter is a disappointment.

The indicator continues to improve as more and more companies report during the quarter.  I see this as a highly positive development.  The indicator was early to turn negative in 2007 and will likely be early to turn in 2009.

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Cullen Roche

Cullen Roche

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