Analysts Overstate Earnings Once Again

We have been noting that earnings expectations are way too high for the second half of the year (Q3 +20%, Q4, +50%).

It turns out that they were also way too high for Q2:

"Halfway through earnings season, banks are still a drag, tech firms are doing OK while the overall outlook remains cloudy.

With 249 of the S&P 500 companies reporting results, second-quarter profits are on track to decline 17.9% vs. a year earlier, according to Thomson Reuters.

"I’d rate (earnings so far) as pretty bad," said Sam Stovall, chief investment strategist at S&P Equity Research. S&P forecast a 10% drop at the start of the quarter but now sees about a 20% shortfall, he said."

Interestingly enough, the chart of earnings from IBD also includes a line for earnings ex-financials

If they were trying to illuminate the earnings picture, they might have also shown earnings ex-energy. As Bloomberg noted earlier this quarter, "Take away Exxon Mobil Corp., Chevron Corp. and ConocoPhillips and profits at U.S. companies are the worst in at least a decade."

One would think showing an ex-negative might be balanced by showing the ex-positive. (One would be wrong)

And it is somewhat odd that I don’t recall IBD showing SPX earnings in 2005-07 period ex-financials. If they were truly astute, they might have shown how artificially pumped up earnings were over that period. Had they done so, it would have revealed exactly how artificial those profits were, and could have saved their readers untold billions.

No matter. Such is the money losing ways of the perennial cheerleaders. Read and watch them at your own financial risk . . .


S&P500 Profits Ex 3 Oil Cos = Awful (May 2008)

S&P500 ex-Risk (November 2007)

S&P Earnings So Far Falling Short Of Q2 Projections 

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What's been said:

Discussions found on the web:
  1. SINGER commented on Jul 30

    money ex-wealth

    dollar ex-purchasing power

  2. JustinTheSkeptic commented on Jul 30

    BR, I feel a tinge of anomosity in your comments and believe me I am right there with ya!

    If transparancy and accracy was the tantamount goal of both corporations and government we would never reach such a pitiful circumstance as the one we are currently in.

  3. 12th Percentile commented on Jul 30

    Those Q2 numbers are going to make the impending second half recovery and awesome 4th quarter earnings all that more impressive. Best Christmas Ever!

    Housing will turn around in a few months and there will be 500,000 new jobs created in the second half!*

    *Note: This information is based on Paulsonomics which is ex-Reality.

  4. 12th Percentile commented on Jul 30

    Consumer Discretionary down 24% even with the “stimulus” checks. That should make for an interesting 3rd quarter.

  5. JDB commented on Jul 30

    Speaking of overstating things:

    ADP reports a +7k gain in employment, with June negative revisions (of course). BR has addressed the abysmal record of MEA in the past, but this seems bizarre.

    If anyone has a chart showing how rosy their data points are when initially released, only to see huge negative revisions over the last 24 months, it would be interesting.

  6. ndd commented on Jul 30

    Barry, in this case I think IBD’s focus is fair.

    If in 2006 someone had come back to you from the future (today) and told you how bad the picture is in the financial sector of the economy, you probably would have concluded that by now we would be in Great Depression II, with 20% unemployment, people selling apples in the streets, blah blah blah.

    And yet ISM manufacturing and non-manufacturing are holding up OK. Not great, but OK. Same for durable goods. Same for retail sales. Same for ADP hiring today. Not even at the level of the 2001 recession. 2Q GDP expected to come in over 2%.

    It’s worth taking note of, no?

  7. GB commented on Jul 30

    I assume that there will be a decent selloff then towards the middle of the 3rd quarter when energy is revised less than the 2nd.

  8. Byno commented on Jul 30


    Could it be Bill O’Neil and his publication’s lunatic right-wing cheerleading for any and all things Bush/McCain that could be the culprit?

    OH Noez!1!!1!

    And, I’ve always wondered, but has O’Neil made public or has anyone ever hinted at the man’s net worth? Given his strategy’s stated performance via AAII, you’d think it would be astronomical. Of course, the problem is those pesky bid/ask spreads that make said performance complete hogwash, or the fact that anyone who’s capitalized at more than a few hundred thousand dollars will wind up moving the stocks they’re supposed to be investing in.

    /just askin’

  9. Greg0658 commented on Jul 30

    ndd posts “from the future … you probably would have concluded that by now we would be in Great Depression II”

    point taken – I wonder if this huge marketplace and the ability to claim bankruptcy is that answer – or – total rearrangement just hasn’t taken place yet

  10. John commented on Jul 30

    IBD’s ed policy is even more eyerolling than the WSJ but I try to keep an open mind about their reporting which is generally fairly factual although there’s no doubt the general tenor leans in the direction of stock market pimping. At the end of the day these folks along with MSNBC all have a vested interest in talking up the market which after all is where their bread and butter comes from. Also in this case there’s obviously a bit of a political bias because the proprietor/editor tend to hire the like minded. It’s reality. I’ll continue reading it but as ever with scepticism.

  11. Greg0658 commented on Jul 30

    insert friendly
    “ability to claim a friendly bankruptcy”

  12. catman commented on Jul 30

    IBD is the right wing illegitimate off spring of the venerated Daily Racing Form, right down to the graphics. Too bad you cant have a stogie at your brokers while you watch the tape these days.

  13. JP commented on Jul 30

    What?! no earnings ex-losses?

  14. Gordon commented on Jul 30

    Barry – Could you provide link for the Q3 and Q4 estimates that you cite. Thanks.

  15. DL commented on Jul 30

    It is true that IBD is oriented almost exclusively to the buy side. But to be fair, William O’Neill is also very insistent (and consistent) about cutting losses early.

  16. Bill commented on Jul 30

    I’d be interested to see the S&P ex-financials and ex-energy too…

  17. kent commented on Jul 30

    I, for one, gave up on analysts when I figured out you could just buy tech and go back to bed (before the dotbomb crash).

    After the crash, its been the same litany: stocks will go up 15-20% this year, and we will have a recovery in the 2H.

    Perhaps its changed, but not last time I looked. These folks add no value for me.


  18. leftback commented on Jul 30

    ADP report = employment ex-reality.

    The Q3 earnings are really going to be dreadful, but you can definitely expect a lot of low-balling to go on between now and then so that companies can meet and beat on CNBC….

    I am about done with the current Bear Market rally. Maybe I am going to leave some $ on the table but I am flipping back to the short side in expectation of some unpleasant reality in the area of employment.

  19. The Big Picture commented on Sep 7

    Why the Bear Is Alive and Well

    A column in the Sunday NYT purports to look at Why the Bear Is Alive and Well. While the main thrust of the column is on point — namely, stocks remain too expensive for a true bear market bottom. However, it does revive the meme that won’t die — name…

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