Tags: FactSet | earnings | guidance | growth

Pessimism Near Record Levels Ahead of Earnings Season

By    |   Wednesday, 02 April 2014 10:24 AM

While the market awaits first-quarter earnings, optimism is shrinking as executives and analysts steadily lower their expectations.

According to FactSet, 93 out of 111 companies in the S&P 500 that issued an earnings outlook for the first quarter have said their earnings will be below Wall Street's consensus estimate.

That's the second-highest number of earnings warnings since FactSet began tracking guidance in 2006, bringing pessimism to near record levels.

Editor's Note: These 38 Dates Are Key to Bagging $313,038

While some companies may sincerely expect to underperform, it's also likely that business leaders are low-balling. Many will underpromise with the intention of overdelivering. It's a game that has been trending for some time now.

But the pessimism does not end with business leaders. Analysts expect year-over-year earnings growth to be negative for the first quarter.

Earnings growth could be muted, but it's unlikely we'll see negative growth, John Butters, senior earnings analyst from FactSet, told CNBC

In an era of low-balling, it's not unusual to see negative projections flare up ahead of earnings seasons, but it is unusual for the outcome to actually live up to the negativity, he explained.

During the first quarter of 2013, analysts were also forecasting earnings growth to be in the red, Butters noted. But positive results led the S&P 500 to see 3.8 percent growth.

Indeed, approximately 70 percent of companies usually beat their earnings estimates, he said.

"Usually we finish somewhere between where estimates are at the start of the quarter and where they are at the end — somewhere in that range," Butters explained. "That's generally how this works. So the odds are that enough companies will beat their estimates that we get back to positive."

That might explain why investors are showing a positive response to the bad news instead of panicking.

For the 93 S&P 500 companies that issued earnings warnings, their stock prices were up an average 0.2 percent two days after their announcements, FactSet noted.

Editor's Note: These 38 Dates Are Key to Bagging $313,038

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InvestingAnalysis
While the market awaits first-quarter earnings, optimism is shrinking as executives and analysts steadily lower their expectations.
FactSet,earnings,guidance,growth
338
2014-24-02
Wednesday, 02 April 2014 10:24 AM
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