One wonders who is right...
From BofA's Savita Subramanian:
Earnings estimate revision ratio continues to climb
The earnings revision ratio for the S&P 500 continued to increase in January, and the three-month ratio settled in at 1.7, above average optimism from the sell side. Sectors with the most positive ratios are Tech and Discretionary, and those with the most negative are Utilities and Telecom Services (p. 3). An above average and improving earnings revision ratio, which is what we have seen for the last couple of months, generally benefits lower quality stocks (Table 1).
But the guidance ratio is heading south
Management and analysts appear to be parting ways. The three-month management guidance ratio (upward to downward guidance) fell to 0.9 this month from 1.4 in December. The ratio generally declines in January, but this month’s drop is more extreme. Tech and Financials have the most positive 3-month guidance ratio, and Telecom Services and Materials the most negative. The direction of guidance has historically predicted the subsequent month’s earnings revision ratio, indicating future downward revisions to earnings
And some more bad news:
Sales optimism continues to lag earnings optimism
Analysts have not been as optimistic on sales as they have been on earnings over the last three months, and the sales forecast revision ratio dropped down to 1.0 (roughly its long-term average). More worrisome to us, the top line / bottom line gap reached a new high, with sales optimism lagging earnings optimism by the largest margin on record. Telecom Services and Tech have the most positive sales forecast revision ratios, Utilities and Materials the most negative.
Visually this divergence looks as follows:
Next thing you know, sellside analysts will blame record insider selling on, you guessed it, snow.