Earnings Will Beat Expectations Only Because the Bar Is Low
- Fourth-quarter consensus estimate dropped 7% over three months
- MS strategist says prior beats came with muted price reactions
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Earnings estimates have been slashed so much over the past three months that Wall Street strategists now expect most companies will easily beat analyst forecasts this season.
There’s however little reason to cheer, as Morgan Stanley strategists noted that a 7% cut to fourth-quarter profit estimates means US companies are poised to report almost no growth compared to the year before. That’s “creating a lowered bar and a higher probability” of yet another mid-single-digit earnings-per-share beat rate, Michael Wilson said.