74% of Forward Corporate Earnings Guidance Estimates for Q3 Have Been Negative

via CNBC:

  • Companies are lowering their expectations for the upcoming third-quarter earnings season.
  • So far, 98 have provided guidance, with 74 percent negative and just 24 positive, the worst ratio since the first quarter of 2016 when corporate America was in an earnings recession.
  • Citigroup strategist Tobias Levkovich said investors’ high expectations for profits could cause a hit to markets if earnings disappoint.

 

After consecutive quarters of near-record profit growth, companies are starting to lower expectations.

With third-quarter earnings right around the corner, S&P 500companies are cutting their outlooks at levels not seen since the first quarter of 2016, when corporate America was in a profits recession.

In all, 98 companies have offered guidance — 74 have provided a negative outlook, meaning they expect earnings to come in below Wall Street estimates, while just 24 have been positive, according to FactSet. The 76 percent negative-to-positive balance is above the long-term average of 71 percent.

Moreover, it comes at a pivotal moment as the Dow Jones industrial average and the S&P 500 both hit records last week.

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Source: FactSet

Earnings have been on a roll lately, with both the first and second quarters posting growth rates around 25 percent. Those growth rates, though, are expected to diminish considerably. The third quarter is projected to come in at 19.3 percent while the fourth quarter likely will slow to 17.3 percent, resulting in a full-year rate of a robust 20.4 percent, FactSet estimates.

In 2019, those numbers change: 7.1 percent and 7.3 percent for the first two quarters, respectively, and a full-year rate of 10.3 percent.

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