Stocks: Watch the Falling Estimates

Before you go, we thought you'd like these...
Before you go close icon

The Dow Jones Industrial Average (INDEX: ^DJI) and the S&P 500 (INDEX: ^GSPC) were roughly unchanged yesterday (+0.03% and -0.07%, respectively, to be absolutely precise). However, it was not a great week for blue-chip stocks, with the Dow down 1.8%.

The macro view: According to S&P Dow Jones Indices, we're more than halfway through the earnings season. We now have full comparative data for the third quarter for 275 companies in the S&P 500. Of these, 173 (63%) have beaten expectations, 63 (23%) have missed, and 39 (15%) have met their estimates. A 63% "beat" rate is in line with a historical average of 62%, according to Thomson Reuters, but it's lower than the rate over the past several quarters.

The two sectors with the highest percentage of companies beating estimates are now health care and consumer staples, while, at the other end of the spectrum, the sectors with the highest percentage of companies falling short are materials and industrials. That seems pretty consistent with a slowing economy -- mind the earnings gap! Note that the bottom-up estimate for next year's S&P 500 earnings per share, which is calculated based on consensus estimates for all the stocks in the index, has been coming down slowly, but relentlessly, over time (see the following table). I expect that trend to continue throughout this earnings season.

Observation date

S&P 500 2013 EPS Estimate

June 29, 2012

$117.75

Sept. 28, 2012

$115.00

Oct. 25, 2012

$114.20


Source: S&P Dow Jones Indices.

How to get rich in the stock market: Start a hedge fund. Of the nearly $20 billion in assets under management at hedge fund Paulson & Co., roughly $12 billion belong to John Paulson and his general partners and employees! If that isn't an option, click here to find out the 3 Stocks That Will Help You Retire Rich.

The article Stocks: Watch the Falling Estimates originally appeared on Fool.com.

Alex Dumortier, CFA, and The Motley Fool have no positions in the stocks mentioned above. You can follow Alex on Twitter, @longrunreturns. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners