While our focus at Wall Street Horizon is on giving our clients the most accurate and up-to-date corporate event dates, we also maintain ten years of history on other event related information such as earnings per share, dividend payments, etc. As such we often times analyze this related information to see if we can spot trends that may help our clients with their investing/trading strategies or help our operations team fine tune their procedures for tracking down accurate event dates.
With this quarter's earnings season now in full swing, and with the stock market taking such a beating as of late, I decided to do a little research into the corporate earnings of the Fortune 1000 to see if there was a correlation between reported EPS and the slumping market. One way to do this I figured was to observe each company's reported EPS this quarter and compare it to last quarter's.
What I observed for the sixty four (64) Fortune 1000 companies that have already announced earnings this quarter is that slightly more than half (53%) have reported EPS greater than what they reported last quarter. While this was not the result I expected to see, I didn't want to make too much out of these findings considering the small sample size and the fact that 53% was not that significant.
So without a big enough sample to work with for this quarter, I decided to look at the earnings that Fortune 1000 company's reported last quarter and compare those numbers to what they reported the quarter before that. Unlikely, but maybe the stock market was just now reacting to the relatively poor earnings that were reported last quarter? Well, not the case as 52% of the Fortune 1000 companies reported better earnings last quarter relative to what they reported two quarters ago.
With the data in hand for the past ten years I figured I might as well plot this earnings comparison for each quarter going back to Q2 2006. And here is what I found . . .
Consistently, for the past 10 years, the third quarter was when more Fortune 1000 companies (average about 64%) reported earnings that beat their previous quarter's. And the second quarter, with a couple exceptions, was when the fewest Fortune 1000 companies (average about 46%) reported earnings that beat their previous quarter's.
What's important to understand however is that the earnings being reported in the third quarter are the results from the second quarter. We know this because right now, for example, we are getting most companies' fourth quarter and full year results. So with that understanding what the above chart is telling us is that Fortune 1000 companies are most likely to improve their earnings in the second quarter versus the first and least likely to improve their earnings in the first quarter versus the fourth. So no matter which way you look at it, the first quarter, relative to all other quarters, is a bad quarter for the Fortune 1000. And given that fewer companies are likely to report improved earnings this quarter than did last quarter, chances are not good that the market will turn around any time soon. Unless of course company fundamentals have little to do with its direction.