January’s earnings season is about to start. Industry analysts have been curbing their enthusiasm for Q4-2011 since last summer, when their consensus expected earnings estimate for the S&P 500 peaked at $26.73 a share during the week of June 3. By the final week of 2011, it was down 8.8% to $24.39. That would put Q4 earnings up only 8.2% y/y, the first single-digit comparison following eight consecutive quarters of double- and triple-digit increases.
Interestingly, the current estimate for last year’s Q4 is the same as the estimate for Q3 at the start of that earnings season. The actual result reported during October beat expectations by more than a buck, yet analysts continued to trim their Q4 expectations. Obviously, they were unsettled by mounting prospects of a financial meltdown and a recession in Europe. (More for subcribers.)
There was a proliferation of negative Net Earnings Revisions among the 10 S&P 500 sectors during December. They were all negative for the second month in a row. Some have been negative for the past three or four months. The overall NERI for the S&P 500 turned negative during September (-0.2), and remained that way in October (-6.0), November (-10.5), and December (-8.9). The good news is that the overall index is highly correlated with the purchasing managers’ index for manufacturing, which rebounded nicely in December. The bad news is that the proliferation of downward revisions may have more to do with weakness in overseas business for the S&P 500 companies, particularly in Europe, where PMIs remained weak during December. (More for subcribers.)