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Monday, October 22, 2012

Earnings Cliff Ahead? Profit Outlooks Are 90% Negative

SPX
SPX (Photo credit: wigu)
Washington, Oct.23, swing trading .-  Earnings conference calls are beginning to resemble crisis hotlines as corporate executives slash profit forecasts because of fears of higher taxes, a recession in Europe and slowing economy in China. Of the 20 companies in the S&P 500 [.SPX 1433.82    0.63  (+0.04%)   ] that have provided guidance for the fourth quarter during the current earnings reporting season, 18 have slashed their forecasts, according to Goldman Sachs [GS  122.77    -0.85  (-0.69%)   ].
That's a 90 percent negative run rate that many investors and analysts have never seen before.
“Although guidance tends to be downbeat, this is especially negative,” wrote Goldman’s David Kostin, in a note to clients over the weekend. The strategist sees this negativity leading to a 14 percent drop in the S&P 500 this quarter.
1433.82     0.63  (+0.04%%)
INDEX
Monday, Caterpillar [CAT  85.08   1.22  (+1.45%)   ] was the latest company to issue a negative forecast for this quarter, along with 2013, with the CEO citing all this uncertainty and a build in inventories.
“Companies are taking the opportunity to lower the bar,” said Mike Murphy of Rosecliff Capital. “All have one eye on the fiscal cliff, so might as well bring expectations down in case we go over the cliff.”

Beyond the money

The most discussed topic on earnings conference calls is in fact the year-end “fiscal cliff,” when the Bush tax cuts are set to expire and mandatory spending cuts go into effect, barring any action from a lame-duck Congress. Executives fear this may occur whether or not President Barack Obama retains office orMitt Romney unseats him.
When speaking of demand from truck companies on the conference call, Alcoa[AA  9.10    0.09  (+1%)   ] CEO Klaus Kleinfeld said, “messages like fiscal cliff, euro news, China … all of that influences that sentiment, and I guess that that makes them push their orders out.” ... Read more.
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