Global stock markets have weakened since May 22, but many especially in the US remain egregiously over-valued. Even assuming continued QE liquidity, negative earnings and revenue trends are weak and likely to undermine popular belief that the economy is improving and revenues and earnings will rebound in the second half. Special dividends and share buy-backs have served to mask the deterioration in corporate guidance moving into Q2. To date 81% of S&P companies reporting have projected negative guidance for the second quarter.
“Over the past five years, an average of 62 percent of S&P companies that have issued earnings-per-share guidance have given projections below the mean EPS estimate. But research company FactSet reports that for the second quarter, 86 of the 106 S&P companies have projected below the mean, meaning that 81 percent of the guidance has been negative. In the materials sector, a whopping 88 percent of guiding companies have issued negative guidance…
Analysts, for their part, have slashed their earnings growth expectations over the course of the second quarter. Whereas they have previously expected earnings growth of 4.4 percent for the S&P 500, analysts now expect growth of just 1.3 percent, FactSet reports.
In the battered materials sector, analysts used to expect earnings growth of 9.4 percent. But since the second quarter began, analysts have cut earnings growth expectations so that they now anticipate materials companies to report a 3 percent decline in earnings.”
But then this is a Tuesday, and everyone knows that in our Fed and Algo driven markets stocks always finish up on Tuesdays (this would be the 21st consecutive up Tuesday), so fundamentals just don’t matter. Until one of these days…nothing else will.