S&P 500 Earnings

We monitor quarterly and annual earnings expectations every Tuesday in our Morning Briefing. This is an especially interesting exercise during earnings seasons, allowing us to see how actual results are influencing future projections. Here is what has happened so far:

(1) During the week of October 21, the actual/estimated blend of earnings for the S&P 500 jumped to $24.91 per share from $24.43 the prior week. So the y/y growth rate rose from 12.3% to 14.5%. That jump was certainly boosted by a quirky accounting rule that lets banks book a profit on the falling value of their own debt. It accounted for nearly half of the profits gain for both Citi and JP Morgan Chase.

(2) The uptick in Q3 didn’t stop analysts from cutting their numbers for Q4 and all of 2012. The Q4 estimate was lowered to $25.38, which would be up 12.6% y/y. The 2012 estimate fell to $108.90, which would be up 11.5% from the latest estimate for 2011. Next year’s estimate has been lowered in 10 of the past 11 weeks.

(3) The V-shaped recovery in forward earnings, which powered the bull market since March 2009, is losing steam. Indeed, forward earnings has been flat for the past 10 weeks, with a slight downward tilt over the past six weeks.

Joe and I are still expecting that next year’s estimate will be lowered to $100 a share by the end of this year. Forward earnings will do the same since it is a time-weighted average of the current and coming year estimates.