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Wall Street’s herd is now much too bullish about the S&P 500

The latest earnings season seemed to contribute to the sharp selloff in stocks during October, as some companies reported bullish earnings that were more than offset by bearish guidance about future earnings prospects.

Collectively, though, the S&P 500 SPX, +1.06% results through the week ended Nov. 8 were 4.9% better than analysts expected during the Sept. 28 week, i.e., just before the start of the latest earnings season (Fig. 1). As I’ve noted many times before, such positive “earnings hooks” are par for the course. (See our S&P 500 Earnings Squiggles Annual & Quarterly.)

In aggregate, the negative guidance that corporate managements provided during earnings conference calls somewhat deflated analysts’ consensus earnings estimates for the fourth-quarter of 2018 and the quarters of 2019 (Fig.

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