Analyst Sentiment on Earnings Takes a Fall

Alcoa (AA) kicked off earnings season last week by reporting earnings that met analyst expectations.

The only problem is that those analyst estimates had been lowered considerably during the last few months.

Given this information, I decided to look at the 30 stocks in the Dow to see what the trend was for this earnings season.

What I found was that 13 stocks had seen their earnings estimates lowered while seven had seen theirs raised and the other ten were the same.

This information in and of itself suggests that analysts are lowering their expectations for this earnings season, but looking deeper into the data shows how much less confident they are.

Of the seven stocks that saw an increase in their estimates, the average boost was only 4.93 percent. Meanwhile, the average reduction for the 13 stocks that saw their estimate lowered was 12.65 percent.

A few weeks ago, I wrote about how the volume on the NYSE had declined for three straight years since the bear market of 2007-2008. I take this as a sign that investors still aren't confident enough to get back into stocks at the pre-bear market levels.

If we are going to see a sustained bull market, investors will need to regain confidence in stocks. I don’t think meeting or barely beating lowered estimates is going to renew investor confidence.

You might want to approach this earnings season with a certain degree of caution.