Why Earnings May Be Better Than All the Dire Forecasts CNBC, Chief executives and analysts have lowered expectations by so much for earnings reporting season, stocks may continue their 2012 gains as results come in higher than expected. A fifth of the companies in the S&P 500 have come out with negative warnings about fourth quarter results, compared to just 30 with positive preannouncements, according to Thomson Reuters. The ratio of negative to positive earnings preannouncements has been a reliable contrarian indicator of market performance during earnings season throughout the years,” said Jason Trennert of Strategas Research Partners, in a note to clients Monday. “Higher-than-average readings, in contrast, can provide the impetus for upside surprises and, by extension, stronger markets.” While it may seem counterintuitive, Strategas and others believe that if companies and analysts have already cleared the air, only good news can come out of the earnings season. Strategas found that that when the negative-to-positive warnings ratio is greater than about two-to-one, the S&P 500 , on average, increases more than two percent during that subsequent reporting season. |