Down, Then Up.

Market volatility has increased over the past month.  Actually it's been on the rise since last fall but has probably been more noticeable to the average investor ore recently.  One of the reasons this is likely happening is the increasingly negative earnings revisions we're seeing from analysts regarding 4th quarter reports.  

The chart above showing the decline in net earnings estimates is from Bespoke Investment Group who took a look at this yesterday.  Here's their thoughts:

"Another earnings season kicks off after the close Monday, and judging by the pace of estimate revisions, analysts are increasingly worried.  Over the last four weeks, companies with negative analyst revisions outnumbered companies with positive revisions by 278.  This works out to nearly 19% of the stocks in the index, and is close to the lowest levels we have seen in a year.  In fact, the pace of revisions is more negative than it has been heading into any earnings season in at least a year."

My comments:  Much of the negative revision is due to massive cuts in earnings over at energy companies.  Since most of the revisions we're seeing are in that arena and since there is a positive component to consumers having extra money from gas savings right now, it is a bit difficult to figure out if this is a one off for stocks or the beginning of a larger trend.  We have to remember that outside of the US growth around the world is more or less stagnant.  The market seems confused by this as well, hence the increase in volatility.  

Stocks may get the benefit of the doubt if the decline is seen mostly confined to energy but we need to remember that declining earnings, especially at these elevated valuation levels is normally not the stuff that bull markets come from.

*Long ETFs related to the S&P 500 and energy ETFs in client and personal accounts. 

Link: Bespoke: Analyst Sentiment Dropping Lika a Stone.