By some measures, third quarter earnings season could reflect an unprecedented level of pessimism. According to analysts, nearly one-fifth of companies in the S&P 500 have pre-warned Wall Street that they won't meet expectations.
As a result, the profit growth forecast for the benchmark index has undergone a serious beat down since the start of the quarter, having been cut from 6.5% on July 1st to just 3.0% today. At the same time,a record low 19 companies, or about 4% of the S&P 500, had the nerve to say in advance that they see things coming in better than analysts thought they would.
Of course, veteran market watchers will say they've seen this saga over and over again, as the bar of expectations almost always gets lowered as the day of reckoning approaches. In fact, it could be argued that since pessimism is high enough, and expectations are low enough, that the market could be rife for a string of nice positive surprises.
To be sure, the past few months of trading have been a boom-to-bust cycle, exacerbated by the Fed's wishy-washy stance on reining in its bond buying program. It's been a period that has seen the stock market and bond yields setting new highs only to give them back again. Despite the recent retreat earlier this month from the federal budget/debt limit fight in Washington, stocks are back within a few points of where we were at the start of the summer.
Unfortunately, this Congressional chaos is not going to do anything to kindle corporate confidence, which is a fancy way of saying that guidance for the fourth quarter is not likely to be particularly heroic. As it stands right now, analysts have priced in ten percent earnings growth and one percent revenue growth.