NEW YORK (
) -- Earnings season is effectively in the books, and while the overall results are fairly positive, there are a few troubling trends that investors should be aware of.
First, the good news. With 491 of the components of the
having reported for the calendar third quarter, the year-over-year earnings growth rate for the index stands at 17.9%, according to
. That's up from a blended estimate for growth of 13.1% on Oct. 3, and better than 12.1% growth seen in the second quarter.
Although it's typically an elevated number, given how analysts tend to tailor their estimates to company guidance, it's still heartening to see that 70% of the
components that have reported delivered numbers that were ahead of Wall Street's consensus view, according to Thomson Reuters.
The tally from
is a bit more favorable, finding that 73% of companies were ahead of the average analysts' view, consistent with a historical average of 74%. FactSet notes that this outperformance came despite a number of high-profile misses this quarter, including
, and said the aggregate upside surprise was 4.8%.
Now for the not-so-hot trends revealed in the numbers. FactSet points out that many of these beats were helped by analysts lowering estimates as the quarter wore on.
"Of the 491 companies that have reported earnings to date, 300 companies had a lower mean EPS estimate on their report date relative to their mean EPS estimate at the start of the quarter," writes John Butters, senior earnings analyst at FactSet, in the firm's weekly "Earnings Insight" report. "In aggregate, estimated earnings for the index declined 3.1% from June 30 to September 30, as nine of the ten sectors witnessed a drop in expected earnings during this time."
So the bar was effectively lowered with the financials (-8.7%), materials (-7.2%), andtelecommunication services (-5.2%) sectors seeing the biggest shift and only the information technology sector remaining flat.
Another worrisome development is the number of negative preannouncements for the fourth quarter. Thomson Reuters says 117 S&P 500 companies gave guidance and 86 of those issued warnings. That makes for a 3.4 ratio of negative-to-positive preannouncements, which is "above the N/P ratio at the same point in time in Q4 2010 (1.7), and above the long-term aggregate (since 1995) N/P ratio for the S&P 500 (2.3)." It's also the "largest showing since the 3.7 ratio in Q2 2001, in the midst of the 2001 recession," Thomson says.
FactSet also points out that the two sectors that saw the biggest earnings growth in the third quarter -- energy at 51.8% and materials at 34.9% -- benefited greatly from higher commodity prices, and that these are also the two sectors that are seeing the biggest downward revisions of fourth-quarter expectations.
By FactSet's calculations, analysts have in total brought earnings expectations down by 4.4% for the fourth quarter, 3.4% for the first quarter of fiscal 2012, and 3.1% for the second quarter of fiscal 2012.
"The 4.4% drop in expected earnings for Q4 2011 is the sharpest decline in estimated earnings during the first eight weeks of a quarter since Q2 2009," FactSet analyst John Butters notes. "The estimated earnings growth rate for the quarter has dropped to 13.8% today from 19.1% on September 30."
report this past week bookended with Alcoa's numbers released all the way back on Oct. 11 to wrap things up for Dow components.
The nine remaining S&P 500 components to report will do so over the next few weeks with four companies --
on Thursday, and
on Friday -- due next week.
Written by Michael Baron in New York.
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