“I’m not being purposely bearish. I view it as almost a public service.”

-David Rosenberg, Gluskin Sheff


To date, 73% of Standard & Poor’s 500 companies reporting have beat Q2 earnings estimates. But as Robin Blumenthal points out this morning, “you would do well to ask: Which estimates?”

Robin references David Rosenberg’s commentary on the subject. Rosie says the good showing is a function of when the estimates were made. His estimates for Q2 earnings/share is $13.94 –  30% below what analysts consensus at the end of 2008.

December 2008 estimates for Q2 earnings were $19.92 — they were repeatedly sliced until they had fallen down to $14.15 as Q2 ended.  While everyone seems to be excited about these beats, they are actually massive misses to the consensus just 2Qs ago. Year over year, earnings are down about 27% for Q2.

As to Q3 estimates — they are now down more than 30% to $14.57.

Given the market’s lofty levels, don’t expect the same celebration for beats of these reduced earnings . . .


Predicting a Grizzly Quarter
Barron’s, 9/5/09


Category: Earnings

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “Earnings: A Bearish Indicator for S&P ?”

  1. dead hobo says:

    BR noted:

    As to Q3 estimates — they are now down more than 30% to $14.57.

    Some see a glass half full, others see it as being half empty. I just see an opportunity to BEAT EXPECTATIONS AND PLASTER THE HEADLINES if they make $14.58. A rising tide lifts all boats. A little good news plus a lot of Fed liquidity and some HFT churning makes for happy times and invisible asset bubbles.

  2. dead hobo says:

    Serious question: Using S&P earnings estimates and P/E multiples, what would be a reasonable level for the S&P at $14.75, assuming flat future earnings? There seems to be a multitude of theories about the correct P/E multiplier to use.

  3. VennData says:

    DR’s ‘Hail Mary’ toss is designed with the hope of clearing waivers and being picked back up in the New York “A” leagues …but you only get three downs in Canada (forgive the stirring of similes.)

  4. torrie-amos says:

    As far as I can tell no matter what is going on per WS analysis, they are always beating something.

  5. “I’m not being purposely bearish. I view it as almost a public service.”

    -David Rosenberg, Gluskin Sheff

    While I understand, partially, the welter used to neutralize the stance, DR need not Hedge.

    His expression of his POV Is a Public Service. Without his, and, few, others, Integrity, We may well be, at this Time, alligning ourselves for “The Two-Minutes Hate” (Orwell, 1984)


  6. ironman says:

    Let’s not forget either – CEOs and CFOs have pretty powerful incentives for beating their earnings forecasts – the ones that fail to do so twice in a one-year period are much more likely to be sacked – 22.3% more likely for CEOs and 13.4% for CFOs, as compared to their earnings forecast-beating peers.

    At some point, one might predict that all companies will beat their earnings forecasts, simply because it’s in the best interests of their corporate executives who will do much to manage those expectations lower, as corporate America completes its relocation to Lake Wobegon.

  7. franklin411 says:

    I’m sorry, but I nearly fell out of my chair laughing at Rosenberg’s quote! Haha!

    The very idea that anyone, anywhere, and at any time has gotten involved with Wall Street as a “public service” is utterly laughable! What is this, 1922? Does he think we still worship businessmen as the Great Gods who know all and see all, and who gave us fire and earth because they love us so dearly? What century does Rosie the Riveter think this is?

    Haha! Thanks, Barry! I haven’t laughed so hard in ages! =)

  8. john10 says:

    Thats whats so stunning. before 2nd qtr earnings were released i looked at 100 big co earnings est’s and fell out of my seat. EST’S FROM 90 DAYS AGO WERE ACTUALLY MUCH HIGHER THAN THE CURRENT ESTS EVEN THOUGHT STOCKS WERE UP 45%. i keep saying to myself how come est’s didn’t sky as stocks skied?the answer was analysts are in bed with co’s and purposely low balled est’s so all could beat them. but what shocked me is how co’s reacted so positively to beating low ball est’s after many fot here stocks had doubled or tripled. the first instance i got that wait somethings not right here is when intc beat est’s. intc’s stock was up 65% off the lows and all expected them to kill est’s yet the 90 day ago est’s WERE ACTUALLY HIGHER THAN THE CURRENT EST’S.i said the scams in get out of the way. we caqn talk about all the lies and hype thats occured in this rally but it means nothing till it means something.

  9. Year over year, earnings are down about 27% for Q2.

    Why bother with estimates when that really is the bottom line.

    After all, next year I’m going to win the lottery and I’m not even going to buy a ticket. I can’t live my life on that based on that reality and I’m pretty sure my banker won’t loan me any money on that basis either. If I had shares on my life they’d probably trade up if I said that though

  10. Andy T says:

    I’ve seen some of these P/E indicators shooting to the moon, but that’s sort of silly. Some of these banks took enormous writeoffs. Wish someone would produce something a little more important, like Price/Operating Cash flow or something a little more indicative than “earnings,” which is a subjective accounting term.

    To the point, though, investors own stocks for earnings appreciation, or growth. If we’re not going to have flat earnings for a few years on the back of pervasive joblessness, then what are stocks really worth? You might has well call them : “Bonds, but with a lot more risk.”

  11. bdg123 says:

    The new normal for S&P earnings is likely around $30. That’s after we probably see an overshoot on the downside. S&P earnings are well too heavily comprised of financial firm => firms that add no intrinsic wealth to the economy and instead actually suck wealth out of the economy. A collapse is a self-fulfilling prophecy and a lesson in usury. Party hard.

  12. constantnormal says:

    I have a hard time believing “earnings” in the wake of the demise of mark-to-market accounting (yes, I know that does not directly effect earnings), and the huge amount of shares being VERY actively traded of companies that are, by any metric, bankrupt. Yeah, that too, should not impact “earnings”.

    But my point here is that this is not even remotely close to an open and transparent marketplace — it is riddled with, and supported by, the most venal corruption and the accounting will be twisted six ways to Sunday to paint these pigs with lipstick.

    So tell me, of what value is it for large enterprises to report earnings of any amount whatsoever, when their balance sheets show their liabilities exceeding their assets by obscene margins, sufficient to cause any thinking investor to wonder why the company is still in existence?

  13. constantnormal says:

    If some benevolent chartmonger has the data, I would really like to see historical charts of the price/sales ratio, and the price/book ratio for the S&P going back as far as there is data. I’ll bet that would be a LOT more eye-opening than historical PE metrics.

  14. patfla says:

    Earnings are down 27% y-o-y? Huh? Oh wait a minute, they must have already (Q2 2008) been well into the huge slide seen here (thanks to our local public service):


    It would appear that even y-o-y doesn’t accurately reflect things in this case. At their peak, S&P earnings were between $80-90. Now we’re quibbling down in the mid-teens.

    I’m sure I can find it easily enough but, with the rally that began in March, P/E must be pretty rich. BofA has a P/E of 38.61? Heh, that’s indeed rich (in more than one sense):


    And so what’s someone like Cisco at?



    P/E’s longterm historical avg is something like 14 or 15. But I seem to remember that the P/E which characterized the Great Depression is something like 5 …

  15. WaveCatcher says:

    DR is surely taking some heat from his clients over missing much of this incredible bear-market rally.

    I am seeing a lot of defensiveness in the essays of DR and Hussman over the past few weeks as this bear market rally has continued to run while they have advised their clients to remain conservative in their allocations.

    I respect those that go counter to the flow, and hold their position until something material changes. I respect DR and Hussman greatly for the integrity of their views.

    Unfortunately for them, both DR and Hussman put a lot of faith in their excellent fundamental analysis but fail to weight technical factors highly enough to catch some of these very profitable intermediate-term trends.

  16. constantnormal says:

    @WaveCatcher 6:55 pm

    “DR is surely taking some heat from his clients over missing much of this incredible bear-market rally.”

    I dunno about that. Gluskin Sheff is definitely upper-tier clientele, and I would expect that return OF their capital trumps return ON their capital.

    And all he need do to make his point is to draw their attention to the preponderance of bankrupt companies (AIG, C, FMA, FRE) zooming skyward in price, and ask if that is the sort of vehicle they would like their money put into.

    This is the most hollow, utterly without substance rally that I have ever seen.

    And I remember that wonder quote of Herb Stein’s, “If something cannot go on forever, it will stop.”

    It’s just a matter of time. It’s a lot more important to miss the downturns than to catch all the rallies.