Doom-and-Gloom U.S. Profit Forecasts Seen Fading Later This Year

Positive earnings guidance as % of total

U.S. companies are poised to provide more favorable earnings forecasts later this year if a pattern for the past three years is any guide, according to Brian Belski, BMO Capital Markets Corp.’s chief investment strategist.

The attached chart highlights the trend by showing the percentage of companies expecting profit to surpass analysts’ average estimate in a Bloomberg survey as a percentage of all companies making predictions. The figures are based on 60-day moving averages of data compiled by Bloomberg.

In 2012, the percentage dropped to its low for the year in March. The 2013 low was recorded in April, and last year’s was posted in February. Highs occurred in November or December.

“From our perspective, 2015 is likely to repeat this trend,” Belski wrote in an April 10 report with a comparable chart. Just 15 percent of companies were positive on earnings for the 60 days ended last week. The reading was this year’s lowest and fell from a peak of 23 percent on Jan. 13.

The annual pattern might have emerged because profit forecasts have become more of “an earnings-management tool” during the past few years than a gauge of companies’ prospects, the New York-based strategist wrote.

Another bit of repetition may soon lift the Standard & Poor’s 500 Index, he wrote. In Belski’s view, this year’s U.S. stock market resembles last year’s, in which the index’s gains accelerated after the first quarter. He expects the S&P 500 to finish the year at 2,250, near the average projection of 2,236 among 21 strategists in a Bloomberg survey as of March 23.

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