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Q4 Earnings Season Gets Underway

We are still some days away from what is ‘unofficially’ considered the start of the fourth earnings season when aluminum producer Alcoa (AA) reports results on January 8th. But we ‘officially’ count all companies that have financial quarters ending in November as part of our fourth quarter results tally.

A Weak Start to Earnings Season

We have results from only 32 S&P 500 companies at this stage, but what we have seen thus far — in terms of the actual reports as well as the pre-announcements — do not inspire much confidence about the rest of the earnings season. If the trend set by these companies holds through the rest of the season, then we probably have a very weak earnings season on our hands.

THE BAR IS SET LOW FOR 1ST QUARTER EARNINGS

As the earnings season has progressed, things have been getting a bit better, but only moved the season from being very poor to mediocre. This is happening when the bar is set at its lowest point in a very long time. For the remaining firms, the bar is set even lower.

THE 2012 EARNINGS OUTLOOK

Full year total earnings for the S&P 500 jumps 46.5% in 2010, expected to rise 14.5% further in 2011. Growth to continue in 2012 with total net income expected to rise 9.8%. Financials major earnings driver in 2010. Excluding Financials, growth was 28.2% in 2010, expected to be 17.8% in 2011 and 7.5% in 2012.

Q4 EARNINGS GROWTH EXPECTED TO SLOW SHARPLY

This week we will change our focus to the expectations for the fourth quarter. The year-over-year growth rate for the S&P 500 is expected to slow dramatically, to just 4.62% from 13.44% in the third quarter. Excluding Financials, the growth slowdown is expected to be even more dramatic, dropping to just 3.97% from 17.7%.

ANOTHER STRONG EARNINGS SEASON

Third quarter earnings season is almost over. Total net income growth has been far higher than expected, although the median surprise and the ratio of positive surprises to disappointments is slightly below normal. Thus, I would characterize the season as very good, but we have seen better .

LOTS OF DATA NEXT WEEK

The flood of earnings reports is slowing to a trickle. Now it is mostly down to the retailers, who tend to have October, rather than September, fiscal period ends. A total of 212 firms are scheduled to report, including 27 of the S&P 500.