Are earnings expectations falling apart?

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Senior Analyst


Marketing Brew

Microsoft and Target are among prominent companies that have made headlines recently by announcing they are cutting estimates for future earnings.

And these companies aren't alone.

For months, some prominent Wall Street bears have noted that S&P 500 company earnings revisions have appeared to become increasingly negative.

However, there's much more to this story.

"There's a popular narrative that earnings estimates are beginning to fall apart," Jonathan Golub, chief U.S. equity strategist at Credit Suisse, wrote.

"The facts do not bear this out."

Golub notes: "Quarterly earnings estimates follow a discernible pattern, declining going into quarter-end, only to rise as companies beat lowered expectations."

In other words, the negative revisions we've seen have been more minor than average, regardless of what historical time frame you use.

We'll only know in hindsight if companies beat those Q2 earnings estimates. But generally, it's not unusual for companies to proactively warn about earnings.

For this reason, investors should never interpret declining quarterly estimates as a sign of deterioration.

While earnings have trended higher over the past century, there have been many short-term downturns along the way.

Keep in mind that so long as companies continue to grow their profits over time, the market will eventually recognize the value of companies' underlying earnings power.


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