I mentioned coming into this earnings season my worry was more about guidance in Q3 (and Q4 especially) rather than the current quarter where expectations had already been slashed quickly the previous 60 days. That said, Q2 results have been quite uninspiring with a lot of EPS beats (on low expectations) but a lot of revenue misses (which cannot be gamed like earnings can be).
- Just 41 percent of companies have beaten revenue estimates, the lowest since the first quarter of 2009 and only the fourth time in the past 10 years that the beat rate was under 50 percent.
Now as we are a good way through earnings season Q3 expectations are being slashed substantially. According to this Reuters story, in just the past 4 weeks Q3 EPS growth has dropped from a projected +3.1% to -0.1%.
- Third-quarter earnings of Standard & Poor's 500 companies are now expected to fall 0.1 percent from a year ago, a sharp revision from the July 1 forecast of 3.1 percent growth, Thomson Reuters data showed on Thursday. That would be the first decline in earnings since the third quarter of 2009, the data showed.
- Excluding Apple, third-quarter earnings are seen declining 0.7 percent, while revenue for the quarter is expected to fall 0.3 percent.
- Earnings estimates have fallen in every S&P 500 sector except financials, with technology among the worst. The materials sector is forecast to see an earnings drop of 11.4 percent for the third quarter, worse than the forecast of a 3.3 percent decline at the start of July.
The next 6-9 months are going to be one very interesting social experiment in the stock market. In the end earnings are supposed to be the "mother's milk" as one well known pundit says, of the market. Meanwhile we have 2 of the world's largest central banks set to try to inflate asset prices. So we'll see if this massive psychological experiment can work – keep in mind during periods of QE2 and QE1 profits were recovering, not stagnating (or retrenching). So if central bankers can indeed manipulate prices ever higher even as earnings don't call for it, we definitely will be in an entirely different world where increasingly prices are detached from fundamentals, and instead attached to the whims of a few men.
Speaking to that, it appears the bar is now set for expectations for action by both the Fed and ECB next week. Gold continued it's breakout that we highlighted a few days ago, so this would confirm the believe that fiat money devaluing is coming. In one session we took back the entire week of downward move in the S&P 500. Frankly there is not much to analyze technically as charts becomes kaput when the market hears the siren calls of intervention. A few words here or there and you get 200 Dow points in an instant.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog