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Q4 Earnings Expectations – Then and Now

By Marc Chandler, Global Head of Currency Strategy, Brown Brothers Harriman

The US Q4 earnings season kicks off the Alcoa after the markets close today. This Great Graphic is from Briefing.Com, which drew from Factset data. It looks at earnings expectations for each of the ten industrial groups in the S&P 500.

With a few exceptions, earnings growth expectations have been slashed since the beginning of Q4. The exceptions are telecom services, utilities and energy. Overall earnings growth of 2.4% is expected, according to Factset. Excluding financials, earnings growth is essentially flat (0.2%). The Bloomberg consensus is close with a 2.9% overall increase in earnings expected and 0.5%, excluding financials.

Not captured in the table below, Q1 13 earnings expectations have also been cut (to 2.5% from 5.3%)

Expectations in the information technology sector have been particularly guided lower. Factset says 29 of the 32 companies in the sector that have provided guidance have issued negative warnings. Like drivers, equity analysts are at risk, as Briefing.Com recognizes of over-correcting and at the same time, the pessimistic forecasts, in effect, lower the bar for upside surprises.

We leave aside the extent to which earnings are impacting equity prices. The desire to avert the full fiscal cliff, the continued aggressive QE from the Federal Reserve, and the reduced tail risks in Europe and of a hard landing in China may also be contributing factors. While many recognize these other variables, reasonable people can and do different on the coefficients, or weights to attached to the variables.



30-Sep Now
Financials 27.80% 15.50%
Telecom Services 7.90% 10.30%
Utilities 4.60% 7.80%
Materials 23.90% 6.00%
Consumer Discretionary 9.90% 4.50%
Energy 2.30% 3.00%
Consumer Staples 5.00% 2.90%
Health Care 1.90% -2.60%
Information Technology 8.40% -2.80%
Industrials 3.30% -4.60%
S&P 500 9.20% 2.40%

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