[Infowarrior] - Herd On The Street: Company Analysts All In This Together

[Richard Forno]

January 9, 2012, 2:20 PM ET
Herd On The Street: Company Analysts All In This Together


http://blogs.wsj.com/marketbeat/2012/01/09/herd-on-the-street-company-analysts-all-in-this-together/tab/print/

Is this what they mean by “consensus estimates”? Company analysts aren’t generally known for sticking their necks out, but this is getting ridiculous.

In the lead-up to fourth-quarter earnings reports, which begin in a couple of hours with Alcoa’s announcement, analysts are more clustered than ever in their profits estimates, says Savita Subramanian of Bank of America-Merrill Lynch.

According to her calculations, estimate dispersion for S&P 500 company earnings are now down below 10% — the lowest that figure has been since at least Feb. 1986 (check the chart). In other words, it’s been at least 25 years since analysts were in such close agreement about where earnings are likely to land. This unusual state of affairs suggests one of two possibilities:

(a) Wall Street analysts are so certain, and prescient, about where earnings are going to be that they’ve all naturally clustered around the correct figures; or

(b) Wall Street analysts have no idea what’s going to happen, given the magnitude of macroeconomic uncertainties, that they’re all cribbing each other’s notes and/or going with the safest, most middle-of-the-pack estimates they can muster.

For the record, Ms. Subramanian is betting on (b).


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