4th Quarter Earnings Will be an Unmitigated Disaster
Stocks setup for fall
It is ironic that stocks are at five years highs going into what is probably going to be the biggest disappointment of an earning`s season since the 2008 financial crisis. We got a hint of 4th quarter results during the disaster which was the 3rd quarter earning`s season where most companies missed on the revenue side, and those that beat EPS guidance, did so barely, and most of that was created through stock buybacks and creative smoothing techniques.
Make no mistake when a public company sets earning`s guidance these are numbers that are very conservative, and they expect to blow these numbers away given a healthy business environment. When a company just barely hits or beats the EPS number, and misses on revenue you know they were buying back stock, and trying any possible financial trick to attain the EPS number. One of the oldest tricks on Wall street, besides giving easy guidance so that when it comes time for earning`s the stock shoots up because they “beat” expectations.
The fact that companies have to struggle so much just to meet expectations tells how bad things are from a corporate profit standpoint. They have cut their operations to the bone for the last three years, and built earnings up from the bottom, and that strategy has reached its point of exhaustion. No more to be squeezed out of that cost cutting strategy.
The Fiscal Cliff
Moreover, with the continual uncertainty coming out of Washington from a policy perspective, code word the Fiscal Cliff, it`s unlikely that CEO`s committed much towards year end discretionary CAP EX purchases which would spur corporate growth during the fourth quarter. So expect to hear the term Fiscal Cliff during Earning`s season quite a lot as the primary excuse for business headwinds by the executive teams during conference calls.