With Alcoa ($AA) waiting in the wings to kick off the 3rd quarter earnings season on October 7th, let’s take a quick look at the rate of pre-announcements, both positive and negative. The data comes from researcher and noted market timer Sy Harding writing at the Great Speculations blog on Forbes.com…
Typically, only 20% to 25% of companies pre-announce results, and according to Thomson Reuters, so far 112 of the 500 companies in the S&P 500 have already issued pre-announcements. Of those, only 34 have said their third-quarter earnings will beat Wall Street’s estimates, while 78 have warned they will not.
That 2.3 to 1 ratio is running considerably more negative than the second quarter earnings warning period when the ratio of positive and negative preannouncements was 1 to 1.
Harding draws the conclusion that based on this data and the fact that analysts have been raising estimates going into reporting season, we could be in for trouble once the actual numbers start to come out. He also notes the incongruity of having earnings estimates raised for corporations while the Fed irself dials back its own estimates for general economic growth.
My take is that we’ve already seen corporate earnings defy general weakness quarter after quarter. The warnings are an important gauge, but one of many.
As always, we shall see.