We are now currently passing the peak period of earnings season and checking in on the aggregate numbers gives us a greater perspective on how companies performed in the fourth quarter. Believe it or not, the percentage of companies beating analyst results has seen considerable improvement over the past few weeks.
At the moment, about 63.5% of companies have exceeded analyst expectations. Year over year earnings growth is coming in at +5.5% from the same period a year ago. Mind you, analysts had grown severely pessimistic going into earnings season to the point where the expectation for earnings growth on a year over year basis was marginal.
The bottom line numbers have been somewhat better than topline revenues. Currently about 57% of companies are exceeding top line revenue expectations. The year over year growth rate is +1.7%. This continues to show companies have been constructive in their management. As mentioned previously, it could also indicate that the drop in oil could be helping companies beat bottom line numbers.
The biggest red flag throughout earnings season on a company specific basis, as highlighted by Bespoke Investment Group, is that the relative spread of companies raising forward guidance to lowering forward guidance has dropped to -8.6%. While a negative spread in guidance is nothing new for the bull market, this is the most negative companies have become when looking at their overall business outlook since the first quarter of 2009. While this certainly could be companies attempting to set the bar low for 2015, it certainly indicates that the current backdrop for business is not extremely favorable.