Earnings Guidance

“For Q2 2013, 87 companies have issued negative EPS guidance while 21 companies have issued positive EPS guidance. If 87 is the final number of companies issuing negative EPS guidance for the quarter, it will mark the highest number of companies issuing negative EPS guidance since FactSet began tracking guidance data in 2006. The current record is 86, which was recorded in Q1 2013. If 21 is the final number of companies issuing positive EPS guidance, it will mark the lowest number of companies issuing negative EPS guidance for a quarter. The current record is 25, which was also recorded in Q1 2013.”

“Although the number of negative preannouncements is running at an all-time high, the market is not punishing the performance of these stocks in the short term. For the 87 companies that have issued negative EPS guidance for Q2 2013 to date, the average price change (2 days before the guidance was issued through 2 days after the guidance was issued) was +0.1 %. This percentage is well above the average of -1.2 % over the past five years.” (FactSet)


The overall feeling is that profits have been subordinate to the search for yield, market liquidity, and the last years investment theme (front run the Fed). But sooner or later reality arrives. Normally the analysts adjust their expectations downwards somewhat weeks or the week before reporting season kicks off. Many companies also choose to leave rather cautious guidance to market analysts. They rather report better than worse results, for obvious reasons. When companies report actual earnings and sales, their numbers often beat analysts’ expectations. Market reaction, positive. On average roughly 70 % of the reporting companies beat market expectations.

The last line, bottom line, is often exposed to a certain degree of “manipulation”. When looking at sales, it is often a better indicator of the state of how things are going ie the development and/or change in company development. There is a number of reasons why a company would use earnings to misrepresent economic performance. Why do I mention this, to emphasize that many companies try to avoid, or at least try to postpone bad news for as long as possible.

Earnings to Misrepresent Economic Performance

Previously, Citigroup and Reuters have reported the following on earnings guidance:

“Since earnings matter the most for equities, in our opinion, and there is relatively robust statistical evidence to back up that contention. In this respect, we have been a tad shocked by the surge in negative-to-positive preannouncement trends that make 2009’s surge appear less worrisome in retrospect. Upward earnings guidance has dipped as well and there has been little consternation or discussion about it.” (Citi)

Negative to Positive Pre-announcement Ratio.

Earnings Guidance

“Of the 116 second-quarter earnings preannouncements given by S&P 500 companies, 93 of them have been negative, while only 14 have been positive. The resulting 6.6 negative to positive guidance ratio is the most negative since the first quarter of 2001.” (Thomson/Reuters)

Negative to Positive Guidance Ratio.

Earnings Guidance


World GDP

“The Economist estimates that world growth slowed to a 2.1% pace in Q1 13, down a full percentage point from Q1 12”.

“Europe is largely in recession. US growth in Q1 has been revised lower. The prospects for Q2 look poor. US growth has not improved, though the euro zone contraction may have eased, it is still appears to be contracting. Japanese growth is likely to lead again, with both exports and domestic consumption continuing to recover. The BRICS have slowed, as have other emerging markets. The sharp rise in global interest rates starting in late-May will not help matters. The increase in interest rates is not a reflection of greater demand for capital due to increased activity.”

“With the Fed officials trying to help the market understood the meaning of its forward guidance and the acute phase of the Chinese squeeze being alleviated, rates ease and stabilize. There remains a reasonable chance that global growth picks up late Q3 or early Q4.”

Well, there is also a reasonable chance that global growth does not pick up . Everyone is expecting growth to pick up, but what if it doesn’t.

World GDP


Chicago PMI

Chicago PMI missing expectations.

June Chicago PMI: 51.6 vs 55.0 expected, 58.7 previous.

May US manufacturing ISM vs May Fed Surveys (equally wheighted).

US Manufacturing ISM

May US Manufacturing ISM vs May US GDP.

US Manufacturing ISM

Yesterday, another Chicago Index: Chicago National Activity Index.

“May Chicago Fed National Activity Index (CFNAI). This data gives us an indication of overall US activity on a monthly basis. On the CFNAI:s preferred measure (using a 3-month mav), activity slipped to its lowest level since October 2012.” (SocGen)

Chicago National Activity Indicator

More on Manufacturing: https://brokenmarkets.wordpress.com/2013/06/27/manufacturing-2/


“There are a number of transitory factors that may be contributing to the very low inflation rate,” Mr. Bernanke said last week. “For example, the effects of the sequester on medical payments, the fact that nonmarket prices are extraordinarily low right now. So these are some things that we expect to reverse and we expect to see inflation come up a bit. If that doesn’t happen, we will obviously have to take some measures to address that. And we are certainly determined to keep inflation not only — we want to keep inflation near its objective, not only avoiding inflation that’s too high, but we also want to avoid inflation that’s too low.”



More on Inflation: https://brokenmarkets.wordpress.com/2013/06/23/inflation-5/ https://brokenmarkets.wordpress.com/2013/06/26/inflation-vs-deflation-2/


Horrible retail sales data from Greece. Greek retail sales by volume fell 14.2 percent year-on-year in April. Retail sales by volume fell 12 percent in 2012, bringing the sector’s total contraction in 2009-2012 to 34 percent. (Reuters)

It has been said that Greece has been saved by the joint efforts of the so-called Trioka and that the country have turned a corner. I’m not so sure. The turnaround is probably still far away. The question is how much worse it would have been if the country actually left the euro?

Greece Retail Sales over time (chart from end of March).


The Greek economy. Greece Budget Deficit (surplus) as % of GDP (charts below from mid May).

Greece Budget Deficit

Greece Unemployment.

Greece Unemployment

Greece Youth Unemployment (age 16-25).

Greece Unemployment

This is earlier IMF projections when it comes to GDP growth going forward. The IMF is good when it comes to projecting but much worse in terms of being right. One should remember that these projections are crucial for IMF handing out more money to Greece.



“Gold is the key asset for the whole sector, so it doesn’t really matter how oversold miners or silver or platinum is, until Gold finishes its downtrend, nothing will bottom.” (ShortsideofLong)

Current correction vs the 1975/1976 correction.