As opposed to what many talking Pollyannas have been broadcasting for the last month or two, companies are progressively downplaying their earnings outlooks. It would appear that along with every 401(k) holder, TBTF CEO, and CNBC anchor, even CEO/CFOs are now hoping for more QE.
If earnings are 'the mother's milk of stock returns', then management are increasingly reducing that flow of milk as day after day they guide below (lemming-like sell-side) analyst consensus estimates.
The index is based on the changes that management make to their outlooks judged against sell-side consensus expectations - the significant drop in the index indicates a (still too high) sell-side consensus that remains in a rosy world of its own relative to management expectations.
105 of the S&P500 names (that Bloomberg explicitly tracks) have provided outlook changes during Q3/2011 with 43 down, and only 10 up.
The bottom line is clear - 'cheap' valuation chatter based on P/E multiples may just have to rein itself in a little given an increasingly anxious corporatocracy and a still Birinyi-ruler-driven sell-side analyst crowd.