The latest earnings season stats coming from corporate America hardly inspire confidence and if they don’t improve, this bull market is in serious trouble. [That being said,] it’s still early and it’s not uncommon for the “beat rates” to improve as the earnings season unfolds. Nevertheless, the current readings are definitely a cause for concern.
So writes Louis Basenese (www.wallstreetdaily.com) in edited excerpts from his original post* entitled Is This An Early Warning Sign of a Stock Market Collapse?.
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Basenese goes on to say in further edited excerpts:
…Although it’s still way early in the reporting season, the “beat rate” numbers are anything but encouraging or, as Bespoke Investment Group put it, “Bottom-line average, top-line bad.”
Earnings Beat Rate
Based on roughly 200 company reports so far, the “earnings beat rate” stands at 58%. That’s right in line with last quarter but it’s well below the highs hit during this bull market. Check it out…
Revenue Beat Rate
Things get downright ugly, though, when we turn our attention to the “revenue beat rate”. It currently checks in at 43.9%. To put that into perspective, if the earnings reporting season ended today, that would be the worst reading since the financial crisis hit.
Since Bespoke’s calculations take into account the results of all publicly traded companies on major exchanges, we could simply downplay the findings as too inclusive. The problem is, when narrowing our analysis to simply S&P 500 companies, the same trend holds true.
According to the latest FactSet Earnings Insight report:
- 72% of the 102 companies in the S&P 500 Index that have reported results beat earnings estimates. That’s slightly above the average beat rate of 70% over the last four quarters.
- However, only 45% beat revenue estimates – falling short of the average beat rate of 52% over the last four quarters.
So either way you slice it, the latest earnings season stats hardly inspire confidence.
Just about the only positive thing I can say…is that current stock valuations suggest some bad news might already be baked into prices. The S&P 500 Index currently trades at 13.5 times forward earnings, which is below the 10-year average of 14.2.
Bottom line: It’s still early and it’s not uncommon for the beat rates to improve as the earnings season unfolds. Nevertheless, the current readings are definitely a cause for concern…
Ahead of the tape,
(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
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