While many companies in the United States are beating earnings expectations this season, there are still some that are missing.
Of course, they’re providing a slew of excuses. Some of them are even legit, like government cutbacks tied to the sequester.
Greencrest Capital’s Max Wolff says, “The sequester is real, and we are starting to see it bite. People have a tendency to forget because it’s been out of the news and it wasn’t a cataclysm. And the things the public really freaked out… got fixed. Everything else didn’t. So there is real truth here.”
There are other excuses being thrown around, however, that are downright laughable.
Coca-Cola (KO), for instance, blamed the rain. Seriously. The company says that people just didn’t drink as much soda. Even Google (GOOG) used the weather excuse, pointing to a warm spring in the U.K. on its conference call with analysts.
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As Wolff says, “Google had a good quarter. Less good than people expected. Better than last year. Less than people thought. And they had to come up with a story, and in a sort of weaker, less particularly profound moment, we hear some basically ‘shama lama ding dong’ about spring weather in the U.K. If Google really is going to be earnings dependent on the spring weather patterns in the U.K. – given what we all know about weather in London – I think we should all be nervous.”
Ultimately, the one metric you should focus on this quarter is the “analyst error rate.” If you’ve never heard of it before, that’s because our Chief Investment Strategist, Louis Basenese, recently developed it.
Essentially, it’s based on the fact that analysts collectively expect S&P 500 companies to report almost non-existent earnings growth of 0.7% this quarter. So, the bigger their error, the higher we can expect the stock market to rally.