Is Wall Street cutting earnings estimates fast enough?
Thursday, June 28, 9:25 a.m. We are fast approaching the 2nd quarter earnings reporting period. When earnings are declining Wall Street always waits until the final week or so to cut its earnings estimates so that no matter how dismal individual reports might be they will still be reported as having ‘beat Wall Street’s estimates’. [...]

Thursday, June 28, 9:25 a.m.

We are fast approaching the 2nd quarter earnings reporting period.

When earnings are declining Wall Street always waits until the final week or so to cut its earnings estimates so that no matter how dismal individual reports might be they will still be reported as having ‘beat Wall Street’s estimates’. As if it doesn’t matter to the outlook for a company that its earnings might be in a year-long downtrend, as long as they beat the estimates each quarter. In fact how many times do we see a company report previously unexpected losses but for the stock to rise because the losses weren’t as bad as Wall Street’s revised estimates.

If Wall Street is going to catch its 2nd quarter estimates up to what is happening in the way of warnings from companies it’s going to have to get going with its estimate revisions.

In the last few weeks we’ve seen a number of companies lower their earnings guidance to give Wall Street time to react.

But the Street is reluctant, since most of its spokesmen are on the talk circuit trying to have investors ignore the slowing economy and euro-zone crisis and concentrate on the market being “so cheap” on a price/earnings basis.

In the last two weeks for example, key companies like Proctor & Gamble, Fed Ex, and Bed, Bath, & Beyond all revised their guidance down for the rest of the year. Curtis Wright (CW) cut its earnings guidance by 30%, from 60 cents a share to 44 cents. O’Reilly Automotive triggered a sell-off in auto parts retailers by lowering its estimated same store sales by almost 40%.

There was also the surprise in this morning’s revision of 1st quarter GDP.

Although overall GDP growth for the 1st quarter was not revised, still showing growth slowed from 3.0% in the 4th quarter to 1.9% in the 1st quarter, the surprise was that previously reported corporate profits in the 1st quarter were revised down, falling $6.8 billion, the biggest drop since late 2008.

Wall Street has begun the ritual of cutting 2nd quarter earnings estimates. CitiGroup group did so yesterday cutting its estimates for retailers Nordstrom, Macy’s, and Saks.

But it seems like the Street has a lot further to go if it is to manage the earnings reports so they mostly beat the estimate again.

It’s apparently not just capitalist U.S. politicians who enjoy perks.

As the economic boom of previous years took place, Chinese politicians apparently made sure they received their share of perks.

But now as China struggles with its economic slowdown, the Financial Times reports that cash-strapped local governments in China have begun auctioning off fleets of luxury cars assigned to officials.

FT reports that Wenzhou, a coastal city hit hard by China’s cooling economy, auctioned off 215 cars over the weekend, raising $1.7 million. It plans to sell 1,300 vehicles, 80% of its fleet, by year-end.

China’s national government has been urging local governments to keep police cars and ambulances, but to sell their chauffer-driven cars assigned to officials since they do not comply with socialist government policies.

FT cites examples of police driving Porsches, and even a Maserati spotted driving around with military plates.

Selling off that inventory into the general market and curtailing new buys, is not a good omen for car-manufacturers. China has been Germany’s biggest car market, and government buying has obviously been important, with 20% of luxury Audis in China believed to be owned by the government.

Is this the downside of having placed so much global corporate emphasis on expanding into China to take advantage of its once seemingly endless growth? 

Subscribers to Street Smart Report: In addition to the charts and updates in the ‘premium content’ area of this morning’s blog, there is a hotline from last evening and the new issue of the newsletter from yesterday in the subscribers’ area of the Street Smart Report website, as well as a global markets’ update from Monday.

To read my weekend newspaper column ‘Major Market Hopes Were Dashed – What Now?’ click here.

Yesterday in the U.S. Market.

A 2nd straight positive day on very light volume, just 0.68 billion shares traded on the NYSE.

The Dow closed up 92 points, or 0.7%. The S&P 500 closed up 0.9%. The NYSE Composite closed up 0.9%. The Nasdaq closed up 0.7%. The Nasdaq 100 closed up 0.6%. The Russell 2000 closed up 1.5%. The DJ Transportation Avg. closed up 0.5%. The DJ Utilities Avg closed up 1.2%.

Gold closed up $4 an ounce at $1,577.

Oil closed up $.85 a barrel at $80.21.

The U.S. dollar etf UUP closed up 0.3%.

The U.S. Treasury bond etf TLT closed up 0.2%.

Yesterday in European Markets.

European markets closed up sharply yesterday for a change. The London FTSE closed up 1.4%. The German DAX closed up 1.5%. And France’s CAC closed up 1.7%.

Asian Markets were mixed last night.

The Asia Dow closed up 0.4%.

Among individual markets:

Australia closed up 0.1%. China closed down 1.0%. Hong Kong closed down 0.8%. India closed up 0.1%. Indonesia closed down 1.2%. Japan closed up 1.7%. Malaysia closed down 0.4%. New Zealand closed up 0.4%. South Korea closed up 0.1%. Singapore closed up 0.2%. Taiwan closed down 0.2%. Thailand closed up 0.5%.

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Markets This Morning:

European markets are back down this morning. The London FTSE is down 1.2%. The German DAX is down 1.5%. France’s CAC is down 0.7%.

Oil is down $.49 a barrel at $79.63

Gold is down $13 an ounce at $1,564 an ounce.

This Morning in the U.S. Market:

After two quite light weeks, this week returns to being a heavy week for potential market-moving economic reports, including another revision of 1st quarter GDP, New Home Sales, Consumer Confidence, Durable Goods Orders, Chicago PMI, etc. To see the full list and times for each release click here, and look at the left side of the page it takes you to.

Monday’s reports were that the Chicago Fed’s National Business Index fell to –0.45 in May from +0.08 in April. And the 3-month m.a. fell to -0.34 from –0.13 in April, still short of the 0.7% that indicates the economy is in a recession. But New home sales were up 7.6% in May. And the Dallas Fed Mfg Index jumped to 15.5 in June from 5.5 in May, while the outlook for future expectations fell from 4.3 in May to 1.3 in June.

Tuesday it was that Housing Price Index showed home prices rose 1.3% in April. And Consumer Confidence fell again in June for the 4th straight month, to 62 from 64.4 in May. And the Richmond Fed’s Mfg Index declined to –3 in June. It has been down through the 2nd quarter, coming in at +14 in April, +4 in May, and now –3 in June.

Yesterday it was that Durable Goods Orders were up 1.1% in May after declining for two straight months. And Pending Home Sales rose 5.9% in May.

This morning it was that new weekly unemployment claims fell by 6,000 last week to 386,000, but prior to that calculation the claims from two weeks ago were revised up by 5,000 to 392,000. So the more important 4-week m.a. is virtually unchanged, down 750 to 386,750. And the scheduled revision of 1st quarter GDP to reflect the latest information was no change from the prior revision, still showing GDP growth slowed from 3.0% in the 4th quarter to 1.9% in the 1st quarter. Probably of more importance is that corporate profits were revised down, falling $6.8 billion, the biggest drop since late 2008.

The reports have dropped our pre-open indicators some, but they were already negative. 

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 100 points or so in the early going.

To read my weekend newspaper column ‘Major Market Hopes Were Dashed – What Now?’ click here.

Subscribers to Street Smart Report: In addition to the charts and updates in the ‘premium content’ area of this morning’s blog, there is a hotline from last evening and the new issue of the newsletter from yesterday in the subscribers’ area of the Street Smart Report website, as well as a global markets’ update from Monday.

I’ll be back with the next regular blog post on Saturday morning, as usual later than on the week-days, probably around 11 a.m.

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