Wall Street Analysts Have Lowered Earnings Estimates

Wall Street Analysts Have Lowered Earnings Estimates

Wall Street Analysts Have Lowered Earnings Estimates


Wall Street analysts have a long history of being overly optimistic about earnings results the further those results are out in the future.

And they tend to lower their estimates in the weeks before a earnings seasons, and often are too pessimistic about the latest Quarterly results, thus programming beats not misses, the system is “rigged”.

That is the nature of the Wall Street beast.

The Big Q: Why follow them?

The Big A: Most investors are lazy.

Below are some observations on all of this and the implications for the outlooks for earnings and stock prices, as follows:

  1. Monthly Earnings Squiggles show long history of too much optimism. During the 36 years from Y’s 1980 through 2015, the endpoint of the Earnings seesaws was below the starting point during 28 of those years by 18.5% on average. The only years with upside surprises were Y.s 1980, 1988, 1995, 2004-2006 and 2010-2011.
  2. Monthly forward earnings tends to be a good leading indicator of actual earnings most of the time. The Earnings seesaws are based on data compiled by Thomson Reuters for S&P 500 operating earnings. Forward earnings data can be calculated on a monthly basis starting in Y 1979, while weekly data are available since April 1994.  Note: forward earnings tends to be an accurate predictor of actual earnings, available since 1986 as compiled by Thomson Reuters on the same basis, over the coming four quarters. But, there is a Key exception to this accuracy: Wall Street analysts do not see recessions coming and so slash their estimates only as it may happen.
  3. Forward earnings Bullish again. On a weekly basis, forward earnings have stalled at record highs for the S&P 500/400/600 since mid-2014, when commodity prices started to fall sharply led by a dive in Crude Oil prices, which are diving again.
  4. Market math may be adding up to an extension of the secular Bull market. As of 21 July the forward EPS for the S&P 500 was 127.39, which is a time-weighted average of this year’s latest consensus estimate (118.22) and the estimate for next year ($134.67). I agree with the Wall Street analysts about this year, but believe they are overly optimistic about next year. Meaning forward earnings may not have a lot of Northside over the rest of the year since at year end it will match the consensus estimate for next year, which is likely to come down. But, once we get into next year, the Y 2018 estimate will start to get more weight as the year progresses. Wall Street analysts are forecasting EPS at 148.20 for Y 2018’s S&P 500 operating earnings. HeffX-LTN’s forecast is EPS at 136.75. So, assuming the multiple remains at its current level of about 17X and under 18.5X. The S&P target range for Y 2016 is still at 2200-2300, barring a recession.

Thursday, the US major market stock indexes finished at: DJIA -15.82 at 18456.35, NAS Comp +15.17 at 5154.98, S&P 500 +3.48 at 2170.06

Volume: Trade was light again, with about 853-M/shares exchanged on the NYSE

  • Russell 2000 +7.3% YTD
  • S&P 500 +6.2 % YTD
  • DJIA +5.9 % YTD
  • NAS Comp +3.0% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.31) Neutral (0.21) Bullish (0.37) Bullish (0.33)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (0.17) Bullish (0.25) Neutral (0.21) Neutral (0.06)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.26) Neutral (0.23) Bullish (0.44) Neutral (0.11)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.31) Bearish (-0.36) Bearish (-0.27) Bearish (-0.29)

Stay tuned…


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