After a very long earnings recession (defined as consecutive quarters of declining/negative earnings growth), there is finally an end in sight. So far Q3 results, while still negative, look decidedly better. While market pros are happy about the improved profits, they are mostly jazzed that the numbers are beating expectations. This is one of those funny inside Wall Street nuances. Its not so important what the company earned as it is what everyone thinks it will earn. In other words it's all about "expectations." In Q3 companies are surpassing those expectations....and in some cases by a lot.
I wonder, though, whether it's because companies are doing a far better job managing Wall Street's expectations or are they simply just doing surprisingly better. What do you think?
Comments
Companies try to manage expectations to avoid investor panic and Wall Street tries to revise its estimates as late in the game as possible to come off as smarter than it is. That's nothing new. Some companies have done surprisingly better. I was surprised that Amazon made so much money off Kindle at the same time as new book prices have turned down sharply.
The "nuance" of earnings expectations is amusingly similar to the point-spread on sports gambling. Wall Street bets not on the company winning or losing money, but on how close it comes to its estimated performance.