Until recently healthcare had been the only sector offering any optimism from an earnings perspective but even that has collapsed now. The three-month earnings revision ratio (ERR) fell for the fifth month in a row to 0.53 from 0.55 - its lowest level in nine months, indicating twice as many cuts as increases. As BofAML notes, this is well below the long-term average of 0.84, and given S&P 500 sales revisions have collapsed to April 2009 lows, they forecast more cuts are likely to come... and a muted January effect looms.
S&P 500 Sales Forecast Revisions are the worst since April 2009...
And Earnings Revisions have re-plunged to nine-month lows (as mid-year hope collapses)
The ratio suggests nearly twice as many downgrades as upgrades to earnings. The ratio remains below the long-term average of 0.84, suggesting more muted near-term market returns. The more volatile one-month ratio fell to 0.54 from 0.59.
Which implies a drastically weaker January effect...
As all 10 Sectors have seen more downward than upward revisions to earnings over the past three months.
Previously, Health Care had been the only sector with positive revisions, but the ERR has fallen below one in this sector as well, to its lowest level in 2½ years. Materials continues to have the worst three-month ratio, with 5x as many cuts vs. increases to estimates — but an improvement from the prior month’s post-crisis low. Also of note: Industrials’ 3-month ERR is the lowest in three years (and still falling).
But, it's not just US corporates, Global earnings revision trends also remain weak...
Based on our global quantitative strategy team’s last update, the 3-month global earnings revision ratio fell in November to 0.59 from 0.68, as analysts accelerated their pace of downgrades. All regions saw the three-month ERR deteriorate, led by the US and Europe. Japan and the US continue to have the highest ratios, while Asia ex-Japan has the lowest, but all regions are now seeing more downgrades than upgrades.
The one-month ratio fell to 0.56 from 0.59 – the lowest in nearly four years. Global equity returns tend to be muted when the Global ERR is near current levels.
Source: BofAML