Friday, July 29, 2005

S&P 500 earnings growth

Remember the VP from Thomson Financial that confidently predicted that S&P earnings growth in Q2 will be growing at a minimal of 10-15% versus the estimated 7-8% growth. Well, we are at the half way point this week, and the blended growth rate is 9.4%, hardly beating the bottom end of the expected range. The one stat that stood out was that not only companies in aggregate did not exceed the whispered high expectations, they beat by the smallest amount, +3.3% surprise and is below the 5% average surprise factor recorded over the past 8 quarters. So in Wall Street parlance, the rate of change has slowed.

Tech companies has the biggest upside surprise about 6% above estimates. This may sound good, but it wasn't mentioned in the report HOW MUCH tech companies typically beat in last recovery...6% upside sounded too little spread to me given their operating leverage. This is in light of no or little "option expensing" yet to be baked into their earnings numbers which over inflate earnings potential.

Consumer discretionary sector is reporting 4% decline in earnings growth. Strange, you'd think that consumers are shopping till thier pants drop, why are those companies not making money?? In spite of news that unemployment rate is running low, layoff announcement data tracked by Challenger, Gray is running at 45% above last year. This has to be the ONE THING that an investor needs to watch: especially the bulls that continue to argue that consumers are doing VERY WELL.

Once again, I cannot reiterate enough (if you can garner something from this blog), is that when people's expectations are high, make sure you look at the facts to support that expectations. If those expectations are based on thin air, then you have to decide to take appropriate actions.

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