Warning Sickness: From Bad to Worse in the Fourth Quarter

Companies have been falling over themselves to refine their earnings forecasts heading into the end of the fourth quarter. While there's been more of everything this season -- upside and downside surprises and reaffirmations -- it's still clear that the period will be another brutal one for earnings.

According to Thomson Financial/First Call, fourth-quarter year-over-year earnings in the S&P 500 could drop by 22%, equal to the decline in the third quarter. "While that might seem to indicate a bottoming out in earnings, it absolutely does not," wrote Chuck Hill, director of research at Thomson Financial/First Call. Because profits began their descent in the year-ago fourth quarter, Hill noted, a big decline from that period implies further deterioration rather than a leveling out.

Nevertheless, optimists are taking solace in the higher number of reaffirmations and positive surprises this quarter. While negative preannouncements still outnumber positive ones, the percentage of negative has fallen, compared with previous quarters. Moreover, certain tech heavyweights recently affirmed or raised their estimates. ...