Companies have been guiding the Street lower and managing expectations for earnings. The ratio of negative-to-positive guidance is now at all-time highs. For every one instance of positive guidance we have seen more than three instances of negative guidance versus consensus. From a slow-and-steady top-line growth trajectory that entirely ignores a global slowdown and the possibility of declining revenue to the sharp contraction in Q1 2013 expectations (and implicitly even more hockey-stick-like recovery in the second half), these six charts should provide some compelling evidence of the miracle-like consensus 'hope' priced into these markets (unless of course we rely on every asset-gatherers fall-back - multiple expansion - as we noted earlier).
Via Morgan Stanley's Adam Parker:
Companies have been guiding the Street lower and managing expectations for earnings. The ratio of negative-to-positive guidance is now at all-time highs. For every one instance of positive guidance we have seen more than three instances of negative guidance versus consensus...
The consensus top-line growth trajectory is fairly typical– a slow and steady improvement that does not account for budget cuts in the US or a recession in Europe (i.e., the risk of declining revenue)...
Earnings expectations for 2013 have declined substantially since the start of 2012. 2013 EPS estimates have fallen from $121 at the beginning of 2012 to $112 now - but remain high - even as during the last three months, S&P 500 2013 estimates have declined by 1.8%. The consensus expectations of $124 for 2014 also appear way too high...
Q1 2013 earnings expectations have seen sharp downward revisions in the last three months and are now near the levels attained in the last four quarters (so no growth at all)...
But while consensus earnings estimates embed this small year-over-year 1% rebound in Q1 – the typical second half rebound is also even more embedded in the consensus forecasts.
As incremental margin expansion expectations (or soul-destroying labor cuts) appear remarkably confident...
The question is: do people care?