Wednesday, September 17, 2014

Another Earnings Season Ahead with Positive Surprises (excerpt)

Here we go again. As the Q3 earnings season approaches at the start of October, industry analysts are scrambling to lower their forecasts. They seem to do so just prior to every earnings season. It happens because companies guide analysts to lower their numbers to avoid reporting negative surprises. For some reason, analysts willingly accommodate their wishes.

Their collective downward revisions rarely depress stock prices because investors have come to expect that the analysts once again are setting the stage for more positive earnings surprises. Besides, while they are lowering their numbers for the coming quarterly earnings season, they rarely do so for the following quarter until a few weeks before its earnings season begins, and so on and so forth.

Since the start of Q3 during the first week of July through last week, the consensus forecast for the quarter has dropped by 4.1% to $29.12, which is below Q2’s $30.10. The latest estimate is up 5.4% from last year’s result for the same quarter. However, we can probably count on upside surprises to bust Q3’s growth. That’s what happened during Q2 when the pre-season forecast of 6.0% y/y turned out to be actually 9.9%.

Today's Morning Briefing: Bear Necessities. (1) Is the bull market aging or maturing? (2) A stealth bear market in the Nasdaq. (3) Internal correction of speculative SmallCaps is bullish for overall bull market. (4) Some wise guys are bearish. (5) Bears are MIA. Do we really need them? (6) Fed may issue hawkish statement, but Yellen should remain dovish. (7) Some things to fear. (8) Bulls don’t die from old age. They are killed by recessions. (9) Recession scenarios not compelling right now. (10) Nothing to fear but a melt-up? (11) Earnings roundup. (More for subscribers.)

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