David Rosenberg: Management takes a knife to earnings estimates — investors should take heed

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Forward estimates still have further to fall as expectations for corporate profits continue to evolve. Find out more.

Employing available Bloomberg data, we ran a screen of S&P 500 companies that provided forward guidance since the beginning of January . Based on the information, which resulted in a list of 430 companies providing an estimate in some regard, we compared the reported data to consensus expectations. The results are summarized in the accompanying table.

Such a high percentage of EPS guidance misses for the next reporting period is above the five-year and 10-year averages, according to FactSet. So, the loss of earnings momentum in recent quarters looks set to continue, and no wonder the negative 6.1-per-cent year-over-year earnings-per-share forecast has been slashed by nearly six percentage points since the start of the year.

Drilling down by sector, to gauge where the weakness is focused, it is clear that tech stocks have had the bulk of the poor forward guidance at 25 per cent of all missed expectations for both profits and earnings for the coming Q1 reporting season. With the headwinds and string of negative news coming from this sector — such as the massive layoff announcements in recent months — it is reasonable to expect this negative momentum to continue.

At the sector level, there has been particular weakness on this front from cyclically sensitive areas of the market, led by financials , consumer discretionary and materials to the downside.

 

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