What’s the Story?

by CC April 23, 2012 9:24 am • Commentary


U.S. stock futures fell, following last week’s advance for the Standard & Poor’s 500 Index, after data showed that manufacturing shrank in the euro-area and China while concern grew about Europe’s sovereign debt crisis.

Alcoa Inc. (AA) and Halliburton Co. (HAL) dropped at least 1.3 percent as commodities declined. Bank of America Corp. and Citigroup Inc. (C) slumped more than 2.5 percent as the cost of insuring Europe’s debt increased after the Dutch government split and French President Nicolas Sarkozy lost ground in elections. Kellogg Co. (K) retreated 6.3 percent after the largest U.S. maker of breakfast cereal reduced its full-year earnings estimate.


The euro zone’s business slump deepened at a far faster pace than expected in April, suggesting the economy will stay in recession at least until the second half of the year.

Chinese factories enjoyed their best performance this year, the latest purchasing managers indexes (PMIs) also showed on Monday, but economists focused on the euro zone’s grim outlook which was worse than any projection in a Reuters poll.

The Markit PMI fell to 47.9 from 49.2 in March, a five-month low and confounding the forecast for a rise to 49.3.

Optimism from this weekend’s deal to boost the International Monetary Fund’s crisis-fighting firepower quickly evaporated and worried investors sold the euro and bought safe-haven German and U.S. government bonds


Market pundits, the financial press and investors are obsessed over whether a company’s results beat, or miss, analysts’ expectations. It’s one of the first gauges traders use to analyze the state of a company and to determine where that company’s stock price will likely trade next.

The beat rate has been extraordinarily high this quarter. About 81% of S&P 500 companies that have reported earnings this season have exceeded analysts’ expectations, which would be the highest “beat” rate on record, according to Thomson Reuters.

But a chart from Zero Hedge highlights how the situation may not be as rosy as it appears.

So far this quarter, share prices have fallen in the days after a company reports better-than-expected earnings and revenue. The data show a decline of 1.2% on average in the three days after an earnings beat.

And companies that have beaten earnings, but missed revenue estimates are averaging a 2.6% decline throughout the same three-day time frame.


Below is a chart showing the percentage of companies that have raised guidance minus the percentage that have lowered guidance for each earnings season going back to 2003.  As shown, after two consecutive quarters where more companies lowered guidance than raised, the guidance spread has turned positive once again.  Through Friday, companies raising guidance have outpaced companies lowering guidance by 2.4 percentage points.