Charting the S&P 500: When “Good” News Is Actually Bad
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More often than not, companies that are likely to fall short tend to pre-announce their results, in part to lower the market’s expectations.
Historically, two companies pre-announce bad news for every company that hints at better-than-expected results to come.
More often than not, companies that are likely to fall short tend to pre-announce their results, in part to lower the market’s expectations.
Historically, two companies pre-announce bad news for every company that hints at better-than-expected results to come.
More often than not, companies that are likely to fall short tend to pre-announce their results, in part to lower the market’s expectations.
Historically, two companies pre-announce bad news for every company that hints at better-than-expected results to come.
But at the moment, the ratio is just 1.1 to 1 — which means that far fewer companies than usual are preparing the market for disappointment.
That may sound like a positive sign, but it isn’t. [br]
Oddly, when the pre-announcement ratio has been this low over the last decade, it “corresponds with a decline of about 6 percent in the S.& P. 500 during the earnings season,” said Jeffrey N. Kleintop, chief market strategist at LPL Financial in Boston.
It may be that without an early warning of trouble, investors become too ebullient, leading to market declines later.
Even if earnings don’t disappoint investors, sales could, according to this article in the New York Times.
While a profit rebound began in earnest in the fourth quarter, with the tripling of those S.& P. 500 earnings, it came without much increase in overall revenue.
Indeed, quarterly sales per share for those earnings grew just 1 percent in the fourth quarter versus the period a year earlier, S.& P. said —
a sign that the economy wasn’t improving nearly as much as the profit figures would indicate.
“The overall market may continue to trend higher if earnings expectations are surpassed and we get encouraging revenue-growth news,” Sam Stovall, chief investment strategist at S.& P., said in a recent report.
But if the market again sees earnings growth without much gain in revenue, he said, “investors may take some short-term money off the table.”
Currently, analysts are forecasting sales growth of around 10 percent in the first quarter of 2010 over the period a year ago.
Finally, there’s the breadth of the profit recovery. [br]
While the fourth-quarter growth was spectacular, a vast majority of it came from just one sector: financials.
That wasn’t a sign of how well financial companies performed at the end of last year.
Instead, it’s a reflection of how much money banks, brokerage firms and insurance companies lost during the lending freeze —
and how those losses made their modest fourth-quarter earnings look good by comparison.
If financial companies in the S.& P. 500 were removed from consideration, overall corporate earnings would have grown 18 percent in the fourth quarter —
not the 206 percent officially reported, according to Thomson Reuters.
