Thomson Reuters research had the following to say about Pre-Announcements so far this quarter:
For Q3 2012, there have 91 negative EPS pre announcements issued by S&P 500 corporations compared to 21 positive EPS pre announcements. By dividing 91 by 21, one arrives at an N/P ratio of 4.3 for the S&P 500 index. This 4.3 ratio is the weakest showing since Q3 2001.
Combined with the weak pre-announcements, about 5% of S&P 500 companies have already reported earnings for Q3. The beat rate for these reports has also been below the long-term average beat rate this quarter. The research report goes on to predict a potentially weak Q3 earnings season more broadly, as the regular earnings season has generally followed the “preseason” relatively closely over the past few years. Here’s the chart, courtesy of Thomson Reuters, to illustrate:
Central bank action has clearly been the bullish catalyst over the last 6 months, and that accommodation is not likely to change anytime soon. But at the end of the day, buying stocks is buying a stream of cash flows out into the future. That plentiful stream of the last few years might not be as bountiful over the coming months.
Stocks move on sentiment over the course of months, and on fundamentals over the course of years, so any fundamental disconnect can continue for a while longer. Traders are probably ready for a weak Q3, so guidance and the future outlook will likely hold more sway this earnings season. But if earnings remain weak going forward, look for that impact to eventually be felt in the stocks.