Reply #24: Markets grow wary about earnings guidance [View All]

[54anickel]

http://news.yahoo.com/s/ft/20051211/bs_ft/fto121120051600310279

The rules of Wall Street's earnings game have changed. And if chief executives in the US have anything to do with it, they will change much more.

During the bull market of the late 1990s, the practice of earnings "guidance" from companies, and the setting of expectations by Wall Street analysts, had a predictable pattern.

Analysts would set their forecasts and slowly reduce them over time, as the company guided them lower. Then the company would beat those expectations, generating positive publicity and a rise in the share price on the day they announced.

That pattern has now broken down. At the turn of the decade, companiessuddenly started drastically under-performing expectations, in the middle of accounting scandals and the end of the internet boom. Now earnings and forecasts are rising strongly, but the market is not responding.

Earnings for companies in the S&P 500 index rose 12 per cent in the third quarter of this year, and expectations for next year are being increased sharply.

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