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Bad News Is Good: Companies Issuing Positive Guidance Lowest Since 2006

As a reminder, US equities diverged from forward earnings estimates and to an even greater extent, from macro data way back in October and as you can see from the following chart (which we are very fond of using for illustrative purposes), the decoupling persists to this very day even as stocks have suffered through a few rather nasty sessions of late: 

Meanwhile, even some on the sell-side have thrown in the towel with Deutsche Bank recently becoming the first IB to admit that S&P earnings may actually fall in 2015, albeit by a “respectable amount given enormous headwinds.” This comes despite companies’ best efforts to artificially inflate the bottom line and drive up their own shares by buying back a record amount of stock which, as we recently noted, ironically creates demand for corporate debt by altering investors’ asset allocation, encouraging yet more issuance, and ever more buybacks as the bubble machine kicks into hyperdrive.

It’s with all of this in mind that we present the following data, courtesy of FactSet which shows that for Q1 2015, only 16 companies issued positive EPS guidance, the lowest count in nearly a decade and not only do investors seemingly not care, they have, in their infinite wisdom, bid up shares by nearly 2%!

Via FactSet:

For Q1 2015, 85 companies in the S&P 500 have issued negative EPS guidance and 16 companies have issued positive EPS guidance. If 16 is the final number of companies issuing positive EPS guidance for the quarter, it will mark the lowest number since Q1 2006.  

 

Companies are providing EPS estimates for Q1 that are 9.2% below analyst expectations on average. This percentage is slightly below the 5-year average of -11.3%.  

 

The market is not punishing companies that have issued negative EPS guidance for Q1 on average. Companies that have issued negative EPS guidance for Q1 have seen an average increase in price of 1.7%, which is well above the 5-year average price change (-0.9%). This is the highest average price increase for companies issuing negative EPS guidance for a quarter since Q2 2009. 

 

For the current fiscal year, 179 companies have issued negative EPS guidance and 61 companies have issued positive EPS guidance. 

Just when you thought things couldn’t get any more surreal, have a look at the following chart which appears to show that bad news is indeed good news as the S&P is “up and to the right” even as the number of negative preannouncements has followed a similar path:

Here’s more color from FactSet...

The number of companies issuing positive EPS guidance is below both the trailing 5-year average (34) and the trailing 1-year average (27) for a quarter. If 16 is the final number of companies issuing positive EPS guidance for the quarter, it will mark the lowest number since Q1 2006 (13). 

 

Six sectors are on pace to tie their record for the lowest number of companies issuing positive EPS guidance for a quarter: Consumer Discretionary (4), Consumer Staples (0), Energy (0), Materials (0), Telecom Services (0), and Utilities (0). However, it is important to point out that 4 of these 6 sectors (Consumer Staples, Energy, Telecom Services, and Utilities), have only had 1 company issue positive EPS guidance on average over the past 5 years. 

 

The Information Technology (-6) and Consumer Discretionary (-4) sectors are recording the largest declines in the number of companies issuing positive EPS guidance relative to their 5-year averages. 

...and here is what you get in the new paranormal…

In fact, this quarter marks the largest average price increase for companies issuing negative EPS guidance for a quarter since Q2 2009 (+4.3%) Overall, 50 of the 85 companies that have issued negative EPS guidance recorded an increase in price during this time frame. Of these 50 companies, 6 recorded a double-digit price increase…

...which invariably leads us to ask a familiar question…