MARKET EARNINGS
Outlook For Current Quarter And Next Quarter Continues to Deteriorate
Now that we are in the dog days of August, the level of 3Q01 earnings warnings and downward estimate revisions is showing signs of the usual seasonal slowing. Nevertheless, the pace of warnings continues to imply that 3Q01 warnings will be at or near record levels.
The total of negative pre-announcements for 3Q01 currently stands at 297. That is 26% ahead of the 236 at the equivalent date for the record setting 1Q01. It is 6% below the 316 at the equivalent date for 2Q01 warnings. More importantly, it is far ahead of the more normal 46 warnings at the equivalent date for 3Q00 warnings. There is nothing to indicate that warnings in the peak pre-announcement weeks in late September and early October will not roughly parallel those of similar periods for 1Q01 and 2Q01 warnings.
That would mean further slashing of 3Q01 earnings estimates. The important thing to remember is that the lull in earnings warnings and estimate revisions is only seasonal and not indicative of any change in the recent dismal patterns in earnings warnings and revisions.
It still seems likely that the 3Q01 earnings decline for the S&P500 will be similar to the 17% decline that is highly probable for 2Q01.
As the 2Q01 earnings reports are approaching finality, the aggregate results continue to hone in on a 17% decline. That compares to the beginning of the year expectation of a 5.4% gain for 2Q01, and a beginning of 2Q01 expectation of a 6.3% decline.
The expectation for 3Q01 at the beginning of 3Q01 stood at a similar 6.2% decline. By 10 May, the equivalent date to last Friday in 2Q01, the 6.3% decline for 2Q01 had fallen to a decline of 11.4%. From what was the essentially the same starting point at the beginning of their respective quarters, the 3Q01 expectations are at a 12.6% decline, compared to 11.4% for 2Q01 at the equivalent date. That is not enough of a difference to say downward revisions are accelerating, but there is clearly no evidence of any deceleration.
The same can be said for 4Q01 revisions compared to 3Q01. Since 1 July, the 4Q01 expectation dropped from a 5.5% gain to the current 0.4% decline, a downward revision of 5.9 percentage points. In the equivalent period for 3Q01 earnings, 1 Apr to 10 May, the 3Q01 expectation dropped from a 1.6% gain to a 2.7% decline. That was "only" a 4.3 percentage point drop. Again, not enough to say downward revisions accelerated, but surely no signs of any deceleration as of yet.
While the expectation of a 4Q01 decline of 0.4% is not quite as bad as the 2.7% decline at the equivalent time for 3Q01, the year-over-year comparison is much easier for 4Q01. Earnings fell off dramatically from 3Q00 to 4Q00 (earnings growth dropped from 18.4% to 3.1%), so the slight advantage that 4Q01 appears to have when comparing equivalent year-over-year expectations for 4Q01 to 3Q01 is misleading. On a seasonally adjusted basis, it continues to appear that 4Q01 earnings are likely to be worse than those of 3Q01.
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