A very good piece of information to look for when trading stocks is forward guidance. The term “guidance” (or “preannouncement”) is defined as a projection or estimate for EPS provided by a company in advance of the company reporting actual results.
Guidance is classified as negative if the estimate provided by a company is lower than the mean EPS estimate the day before the guidance was issued. Guidance is classified as positive if the estimate provided by the company is higher than the mean EPS estimate the day before the guidance was issued.
Following a turbulent end of year quarter, companies are expecting to start issuing their Q4 results over the next couple of weeks and as things stands, the situation is looking rather bleak.
On January 2, Apple issued revenue guidance for the fourth quarter of $84 billion, which was below the mean revenue estimate of $91.3 billion. Samsung also issued a profit warning last week and both companies cited weakness in China and lower demand as the primary cause of the lower revenues.
Given that the US/China debacle has been the major concern over the last couple of months, there is the risk that more companies will issue EPS or revenues below expectations for Q4 2018.
What is the situation now?
According to FactSet, on the earnings side overall, 106 S&P 500 companies have issued EPS guidance for the fourth quarter. Of these 106 companies, 72 have issued negative EPS guidance and 34 have issued positive EPS guidance.
The number of companies issuing negative EPS guidance for Q4 is below the five-year average of 76, while the number of companies issuing positive EPS guidance for Q4 is above the five-year average of 32.
On the revenue side overall, 77 S&P 500 companies have issued guidance for the fourth quarter. Of these 77 companies, 46 have issued negative revenue guidance and 31 have issued positive revenue guidance. The number of companies issuing negative revenue guidance for Q4 is above the five-year average of 42, while the number of companies issuing positive revenue guidance for Q4 is slightly below the five-year average of 33.
Thus, the earnings guidance issued by S&P 500 companies for Q4 has been slightly more positive than average, while revenue guidance issued by S&P 500 companies for Q4 has been slightly more negative than average.