Damian Bagarozza, right, works with fellow traders on the floor of the New York Stock Exchange Monday, March 19, 2012.Richard Drew
Well, that's a wrap for S&P 500 fourth quarter earnings reports and the results show a mixed picture. Overall, earnings were $24.56 (U.S.) a share. That beats Bank of America's lowered expectations at the start of the quarter, which had called for earnings of $24.37 a share.
The problem? Apple Inc. can take most of the credit, given that its gargantuan earnings have overshadowed the rest of the market. Exclude Apple from the results, and Bank of America's quant strategist Savita Subramanian notes that earnings would have missed their expectations by 1.4 per cent. Put another way, earnings grew 13 per cent over last year, but grew only 10 per cent after excluding Apple.
There's another problem here: Fewer companies are beating analyst estimates. According to Ms. Subramanian, just 52 per cent of companies in the S&P 500 topped estimates this quarter, 47 per cent beat sales estimates and 31 per cent beat both earnings and sales estimates – which is the lowest "beat rate" since 2008. It's also considerably lower than the average since the recovery began in the second quarter 2009, which has seen an earnings beat rate of 60 per cent.
There could be a little something here for everyone, though. Bearish investors will see these figures as a sign that the stock market has become very stretched after three years of gains and a strong start to 2012.
However, bullish investors will point out that declining earnings growth is perfectly normal as companies switch from recovery mode into growth mode.
David Berman