The Mother Of All Delusions: US Stocks Blind To Crashing Earnings Estimates (For Now)

Monday, September 16, 2013
By Paul Martin

The Fed’s Greatest Accomplishment

Corporate revenues have been crummy all year, with many companies seeing actual declines. It has infected a wide range of sectors, though a few, such as the auto industry – both manufacturing and retail – are still booming. Even the tech sector has been singing the revenue blues. But revenues are brushed off by the markets these days as irrelevant. When a revenue debacle is reported, it might take down the company’s stock for a few days, but then it crawls back up. Because, forget revenues. What matters is earnings growth.

But, um… forecasts of earnings for the third quarter have come crashing down, according to Thompson Reuters IBES. On October 1, 2012, earnings for Q3 2013 were still expected to grow at a phenomenal 15.9%, a sign of blind devotion to optimism. By the propitious day of Friday, September 13, 2013, growth expectations for the same quarter had plunged to 4.7%.

Earnings forecasts are cascading down for Q4 as well, but more slowly, and with less desperate urgency, there still being some room for hope and some time for miracles – a series of which is precisely what it would take to achieve the inexplicably high 11.1% earnings growth that has somehow managed to remain on the books as of Friday. Within it, given what the Fed is handing over to Wall Street on a monthly basis, earnings at financial firms were expected to balloon by a breath-taking 26%. The Fed better get busy to make that pan out.

The graph shows how analysts, a ridiculously optimistic bunch, have tempered their enthusiasm for earnings growth. Further downward revisions are likely. Earnings stagnation would be next.

The Rest…HERE

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