MARKET EARNINGS
Can you say "free fall"? That's what we seem to be heading for in revisions to 4Q00 and 1Q01 earnings estimates. It may be a temporary phenomenon confined to the 3Q00 earnings reporting period as analysts react to the comments accompanying those 3Q00 earnings releases. But then again it may continue.
Since 1 October, the beginning of 4Q00, industry analyst's expectations for S&P500 earnings growth for 4Q00 were 15.6%, but have fallen since then to 13.9%, while those for 1Q01 have dropped from 14.2% to 13.0%. Both of these are more than the normal trimming.
Particularly of concern is the slashing of technology 4Q00 technology estimates. Deep cuts in the 4Q00 estimates were expected in some of the other sectors, such as the consumer cyclicals, but not in technology. Earnings growth for the 4Q00 S&P500 technology sector have dropped from 29% on 1 Oct to the current 24%.
Estimates for consumer cyclicals have been falling like a stone since mid-August, especially for 3Q00 in the beginning, and more recently for 4Q00. After showing earnings growth of 12% in sector earnings in 1Q00, consumer cyclicals earning growth fell to 7% in 2Q00, but estimates for 3Q00 on 1 July were 12% for 3Q00 and 15% for 4Q00. That was inconsistent with a Fed induced economic slowdown that many thought was underway. But the analysts did not begin to make meaningful cuts until mid-August.
By 1 October, the estimates for 3Q00 had dropped to -1% but 4Q00 was only down to 10%. An acceleration in earnings growth for the consumer cyclicals from -1% in 3Q00 to +10% in 4Q00 was still inconsistent with what then looked even more like a Fed induced slowdown. However, since 1 October, the estimates have dropped to -6% for 3Q00 and to +5% for 4Q00. That still represents an acceleration in 4Q00, but at least the 4Q00 estimates are now dropping sharply.
In addition to slashing 4Q00 estimates in the technology and consumer cyclicals sectors, it is also occurring in basic materials, capital goods, and transports.
Yes Mr. Rogers, we can say "free fall".
But the issue is how long do we have to keep saying it, particularly for technology which is the real wild card in where aggregate earnings growth are headed in 4Q00 and beyond.
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