Corporate Earnings: Are They Waving Warning Flags?

August 22nd, 2012
in econ_news, syndication

Econintersect:  Corporate earnings reports for the second quarter of 2012 are nearly complete.  The results are not reassuring.  And analysts estimates for the third EarningsSMALLquarter are increasingly negative.

One of the few bright spots in the recovery from The Great Recession, a recovery that started in July of 2009, has been the strong advances in corporate earnings and in the U.S. stock markets.  Earnings have reached new record highs and the stock market has recovered almost all of the declines that occurred fromOctober 2007 to Match 2009.

Follow up:

Some of the concerns have been highlighted by Caroline Valetkevitch (Reuters):

  • "For the second quarter, the percentage of companies beating revenue forecasts was the lowest since 2009. For every company that gave a positive outlook, nearly five companies gave negative outlooks, Thomson Reuters data showed."
  • "Third-quarter earnings estimates are down sharply, and now show a year-over-year decline of 1.8 percent, which would be the first quarter of negative growth in three years."
  • "Revenues have not grown in proportion with earnings. That's to be expected early in the recovery, but now we've matured. We're well along in the cycle, and revenues are still trailing," said Michael Gibbs, co-head of Equity Advisory Group at Raymond James in Memphis, Tennessee.

However, earnings were up by 8.5% in the second quarter - the earnings decline is expected and not yet realized.

The following chart from Y-Charts shows the 10-year history of S&P 500 earnings quarter by quarter.  The last data point is for 1Q/2012.


Note how the $21 - $23 per share area has been a pretty firm resistance level for the past five years.  If the $25 level could be exceeded (it will be very close in the second quarter) it could be a potential breakout.

John Lounsbury


Analysis:  U.S. corproate earnings point to further gloom (Caroline Valetkevitch, Reuters, 17 August 2012)

S&P 500 Earnings Per Share (Y-Charts, 21 August 2012)

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