These 4 Ugly Charts Remind Us That Wall Street's Earnings Forecasts Are Always Way Off

Q4 just ended, which means earnings season is about to kick off.

For the full year, strategists estimate that the S&P 500 delivered earnings per share (EPS) of $US109 in 2013. Looking ahead, they estimate the S&P will deliver around $US117 in 2014.

Keep in mind, strategists tend to be off when it comes to forecasting earnings. This chart of evolving annual earnings expectations from Gerard Minack just looks like chaos.

According to Morgan Stanley’s Adam Parker, the average shows downward revisions, which means strategists tend to start the year optimistically.

This shorter term chart from David Bianco is interesting. It shows that after sharp market downturns, like the dotcom and credit bubble busts, strategists tend to underestimate earnings but gradually overestimate earnings as markets mature.

The trend suggests that analysts are probably on the bullish side right now.

Indeed, the latest data from FactSet shows that the ratio of companies announcing negative earnings guidance to companies announcing positive earnings guidance is the highest on record.

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