David Rosenberg: Strong Earnings Deserve An Asterisk

In his daily missive, Gluskin-Sheff economist David Rosenberg tries to poke holes in the idea that earnings beat expectations — if anything, he says, analysts have lowered the bar to such an extreme degree that there was no way companies couldn’t beat. He gives this chart, showing just how steeply quarterly expectations have been whacked:

Fair enough, but we’re not sure this chart is really that damning, or that this is any reason to be sceptical of the rally. In the end, the market has its own expectations — we don’t know what they are, nobody does; we can only guess — and it seems as though earnings and the latest economic data have in fact beaten those expectations. Whether they were in line with the official analyst estimates we don’t know. If anything, we could surmise that analysts have been slow to react, and like all humans do, attempt to overcompensate during a period of extreme change.

So, sure the bar was set pretty low. But if the market wasn’t roughly on board with these guesses, then the “beats” wouldn’t have pushed the market higher.

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