Analysts Start The Year Negative Once More, Returns YTD Are Not...
- SP 500: +3.61% YTD as of Friday, February 21, 2020
Nasd 100: +8.31%
Russell 1
K: +3.91%
In this article on January 13th, of this year, readers were shown the tendency for S&P 500 estimate revisions to be more negative than positive with 4th quarter earnings reports and full-year guidance.
I don’t know what the rationale is behind this regularly-scheduled pessimism, but analyst’s (i.e. the Street) seems to be more negative than market returns.
And looking at history, the revisions tend to get more positive as the year progresses.
With Walmart (NYSE:WMT) unofficially ending the Q4 ’19 earnings season last week, the negative revisions outnumbering the positive revisions has continued again in Q1 ’20 (remember, these are Q4 ’19 earnings releases):
SP500 Estimate Revisions 
SP500 Estimate Revisions
Unlike the January 13th post, this time around i wasn’t the village idiot you’ve come to expect, and attached the column headings so readers could see which columns are positive revisions, and which are negative.
The point is – once again – this earnings season starts the year with pessimism, and yet the returns for Q1 ’20 YTD are actually pretty healthy.
Retail earnings start being reported this week, and then in March we get Fed
Ex (NYSE:FDX), Oracle (NYSE:ORCL), and a bunch of other tech companies, including Micron (NASDAQ:MU).
Ive asked IBES by Refinitiv if they have the revision data by sector, but the answer was “no”. The 15% drop in crude oil January ’20 undoubtedly drove a lot of this negative revision data.
Summary / conclusion: One hallmark of this bull market has been the ease with which sentiment turns negative, thus – in my opinion – helping to sustain the secular bull market. The pessimism is understandable: From 1945 through 2000, the S&P 500 saw only one 50% correction, and that was 1973 – 1974, and that was around OPEC, 8% inflation at the consumer level, and the potential constitutional crisis around Watergate. (President Nixon resigned from office in August, 1974.) The point being from 2000 through 2009, most Americans and newly-minted Wall Streeter’s saw not one but two 50% corrections in the S&P 500, and saw an entire decade where the cumulative return on the S&P 500 was about 12.5%. (Compare this to the cumulative 125% return on the S&P 500 from 1995 – 1999.)
Personally I like the pessimism on the part of the Street. It portends good things for “expected, future stock returns” when the revisions get revised higher.
Remember this blog is strictly one opinion (that is my own) and readers need to evaluate the information in light of their own personal finances. Take everything you read with a substantial grain of salt, both on this blog and anywhere there are opinions offered.
Thanks for reading.