Earnings trend
After a long time, earnings trend show a slowdown. The earning season will start next week and again offer profitable opportunities on both long and short side.
Materials and Industrials Expected to Lead Q4 Earnings
With the S&P 500 up over 11% from its early August rally-point, investors are hoping for a strong fourth quarter to keep the upward momentum going. On the whole, analysts estimate that the median S&P 500 firm will show 9.7% year-over-year growth this quarter. If this happens, investors will likely be disappointed, as it would mark the first time in years growth was not double-digits. Positive analyst surprises, however, seem to be the recurring trend. With a median surprise similar to what we saw last quarter, the current reporting period could show actual earnings growth in the range of 11% to 13%.
On a sector basis, quarterly earnings growth is expected to be highest in the Materials sector, at 16.3%. The low end of the growth scale belongs to both the Utilities and Telecom sectors, with expected comparable declines of 6.3% and 6.8%. For the full-year, the S&P 500 is now expected to show a healthy growth of just over 12%.
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3 comments:
Those aren't really "investors' expectations" but rather "analysts' estimates" – and as such, the biggest short opps will be where estimates are high, because expectations will probably be higher still, and the biggest long opps will be where estimates are low, because usually the expectations are lower still.
When it comes to earnings only the analyst estimates matter, individuals have very little edge in forecasting estimates.
Significant surprises on either up or down side is what to watch for. But most of the opportunities in stocks heavily covered by analyst gets arbed out as analyst move their estimates up or down well in advance and there is an entire industry to predict such srprises. Obviously the big investors have an edge in it. Zacks rank, Value Line, Starmine and many others have systematised exploitations of this anomaly.
But inspite of that "surprises" by very defination are surprises and you still find opportunities. The best opportunities are in stocks not followed by analysts, the small caps, the turnaround plays etc.
One of the highly profitable system on Reuters screen uses earning miss to go long and it is the most profitable out of their 15 screens. So there are many ways to skin the earnings cat.
Good or bad earnings, a rally up until the last day of the year rarely (if ever) ends there.
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