Tuesday, July 7, 2015

Reading the Earnings Tea Leaves

As we mentioned yesterday, Alcoa kicks off the second-quarter reporting period tomorrow, and it's not expected to be a pretty sight. Analysts are expecting a 4.5 percent profit decline from a year earlier for S&P 500 companies, according to FactSet.

But that's not as bad as it might seem. In most quarters of late, actual earnings have come in between where expectations start a quarter and where they ended. As of March 31, the prediction for the second quarter was that earnings would decline by just 2.2 percent.

And recent history suggests that the analysts have been even more wrong lately. Coming into first-quarter earnings season three months ago, analysts expected the S&P 500 to report a 4.6 percent decline in profits. But in the end, earnings grew slightly.

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