It's early, but as we pointed out yesterday in our Q2 earnings preview [6], the background noise is starting to grow louder. With near record levels of negative pre-announcements post the financial crisis (most recently AMD and Cummins), we are shocked (shocked we tell you) that analysts could have got it so wrong. Expectations for Q2 2012 EPS Growth have dropped from a Viagra-based 'its-always-better-two-quarters-out' view in August 2011 of +11% to -1.8% today. What is not surprising is the hope-filled 14% S&P 500 EPS growth rate expected for Q4 2012! With EURUSD down almost 11% from Q2 2011, we can only imagine the FX translation impacts that analysts are desperately trying to goal-seek into their forecasts - which we presume accounts for the surge in Q4 when Europe will be 'fixed'. With negative macro surprises so disconnected from equity market performance (and implicitly hope for earnings), it seems there is notable room for disappointment.
1) Q2 2012 EPS Growth expectations have fallen from over +11% to -1.8% since August 2011 (priced in? - seems not, given...)
[7]
2) Near record levels of negative pre-announcements (which are accompanied by notable weak equity performance upon announcement) and moreover - positive pre-announcements are trending notably lower also...
[8]
3) But have no fear because it will all be fixed again by Q4 2012 (when revenues and earnings will hockey-stick back - why? well, because they have to right?)...
[9]
4) As everyone assumes that Europe will be fixed by then and the near 11% drop in EURUSD YoY for Q2 will be washed away...
[10]
5) US Macro Data reports were dramatically worse throughout Q2 2012 (and yet equities remain up on NEW QE hope - not earnings)...
[11]
Charts: Barclays, Goldman Sachs, Bloomberg