Second-quarter earnings season kicked off yesterday, with Alcoa, traditionally the first company to report, announcing it had earned a grand total of zero cents per share. What might we expect from the rest of the earnings reports? As the investment researcher Ed Yardeni notes, companies have been very pessimistic lately. From April 5 through last week, American corporations have cut their earnings estimates by an average of 3.3 percent.
The donwgrades have been very broad-based; according to Yardeni, nine of the ten S&P sectors have cut their average estimates. The financials have led the way, lowering their estimates by an average of 7.7 percent. The one sector that hasn't cut its estimates is telecom services, which has increased them by 3.3 percent.
So should we be expecting a disappointing earnings season? Not necessarily; companies have long learned to downplay expectations, since it's so important that they not miss their earnings estimates on the downside. On the other hand, it can't be a good sign that so many companies have diminished expectations.
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