Thursday, February 27, 2014

Global Earnings Revisions Remain Mostly Negative (excerpt)

I calculate monthly Net Earnings Revisions Indexes (NERIs) for all of the S&P 500 sectors and industries and most of the MSCI global stock indexes. These NERIs are three-month moving averages of the number of forward earnings estimates that are up less the number of them that are down as a percentage of the total number of forward earnings estimates. Looking at these NERIs around the world, we can see lots of downward revisions through February. I believe they are consistent with subpar global economic growth.

Keep in mind that analysts tend to be too optimistic, so their estimates tend to be revised downwards. Nevertheless, NERIs tend to be positive when an economy is growing fast, especially during economic recoveries. They can be negative when economic growth is steady and middling. They always go negative during recessions since industry analysts aren’t any better than economists at foreseeing economic downturns. Let’s review:

(1) World NERI was -5.9 during February, the lowest since December 2012. It has been negative for the past 32 months.

(2) S&P 500 NERI also turned more negative in February, to -6.6, the lowest since January 2013. Guidance provided during the Q4-2013 earnings season caused analysts to reduce their estimates for the first quarter and all of 2014.

(3) Europe NERI fell to -11.0 this month, the lowest since December 2011. It’s rather odd that this index is so weak given the solid improvements in the region's M-PMIs and NM-PMIs.

(4) Emerging Markets NERI declined from -3.0 last month to -5.3 this month. It has been negative since March 2011.

Today's Morning Briefing: The Future Is Coming. (1) Forecast often, or far into the future. (2) Another dismal economist. (3) Professor Gordon responds to his critics. (4) Friedman is charged up about “Start-Up America.” (5) Change coming fast and furious. (6) Opportunities for investors. (7) If Abenomics fails, Japan’s future will be bleak. (8) Lots of negative NERIs around the world. (More for subscribers.)

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