Earnings Cliff?

November 6, 2012

It has been our experience that since the Securities Exchange Commission (SEC) adopted Regulation FD (Fair Disclosure) in August 2000 that many corporations have adopted a more conservative approach when discussing the future, especially when major events are around the corner, such as the imminent presidential election and the looming “fiscal cliff.”
-Mike Boyle, senior vice president, Advisors Asset Management

We are now about 63% (316 of the 500 S&P 500 companies have reported) of the way into the third quarter earnings season and the popular opinion seems to be that the earnings are disappointing, that this current earnings cycle has peaked and that earnings going forward will fall sharply (earnings cliff). In a nutshell, we don’t believe that this is the case and will begin with the former, that the current crop of earnings reports are disappointing.

Clearly, there have been some high-profile earnings misses this quarter, such as Google and Apple – and of course there is the fact that Google even mistakenly released their earnings report midway through the trading day on Oct 18 vice after the close of trading. Despite this, as we look at the numbers, we see a current earnings season that looks, at least statistically, very similar to the last and also compares very closely with long-term averages.

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