Companies have been guiding the Street lower and managing expectations for earnings. The ratio of negative-to-positive guidance is now at all-time highs. For every one instance of positive guidance we have seen more than three instances of negative guidance versus consensus. From a slow-and-steady top-line growth trajectory that entirely ignores a global slowdown and the possibility of declining revenue to the sharp contraction in Q1 2013 expectations (and implicitly even more hockey-stick-like recovery in the second half), these six charts should provide some compelling evidence of the miracle-like consensus 'hope' priced into these markets (unless of course we rely on every asset-gatherers fall-back - multiple expansion - as we noted earlier [4]).
Via Morgan Stanley's Adam Parker:
Companies have been guiding the Street lower and managing expectations for earnings. The ratio of negative-to-positive guidance is now at all-time highs. For every one instance of positive guidance we have seen more than three instances of negative guidance versus consensus...
[5]
The consensus top-line growth trajectory is fairly typical – a slow and steady improvement that does not account for budget cuts in the US or a recession in Europe (i.e., the risk of declining revenue)...
[6]
Earnings expectations for 2013 have declined substantially since the start of 2012. 2013 EPS estimates have fallen from $121 at the beginning of 2012 to $112 now - but remain high - even as during the last three months, S&P 500 2013 estimates have declined by 1.8%. The consensus expectations of $124 for 2014 also appear way too high...
[7]
Q1 2013 earnings expectations have seen sharp downward revisions in the last three months and are now near the levels attained in the last four quarters (so no growth at all)...
[8]
But while consensus earnings estimates embed this small year-over-year 1% rebound in Q1 – the typical second half rebound is also even more embedded in the consensus forecasts.
[9]
As incremental margin expansion expectations (or soul-destroying labor cuts) appear remarkably confident...
[10]
The question is: do people care?