Traders and investors have grown comfortable with a steady stream of corporate earnings reports. 2011 as a whole may come in as high as $15 a share for the S&P 500. But the gravy train may end starting next week.
The number of companies reducing guidance and downshifting expectations is at a three year high. Similarly, analyst earnings forecast cuts are at a ten year high. Among the 25 companies that have already reported, only 60% beat estimates, another new low.
In my own 2012 Annual Asset Class Review I predicted that S&P earnings would slow from $15 a share to only $5, and I received a lot of abuse from the hedge fund community for being that optimistic. Morgan Stanley has since joined in with its own bucket of cold water by predicting a 7% decline in the stock market this year, blaming deceleration, disfunctionality, and deleveraging, matching my own expectation.
The announcements kick off after the Monday close when aluminum (aluminium to you Brits and Ausies) producer, Alcoa (AA), reports. Costs have been rising, sales prices have been falling, creating a squeeze on earnings. The technical picture looks particularly dire, with a double top in place and a descending triangle formation in the works. Will this be a preview of what a second “lost decade” will look like? Has the stock market figured this out yet? Not!
Those Q4 Earnings Aren’t Going to Be So Pretty