Equity analysts returned from holiday and slashed earnings estimates.
There were 16,322 downgrades to earnings forecasts for companies in the MSCI all-country world index (ACWI) in the latest fortnight, versus 11,523 upgrades. The weekly revisions ratio – upgrades minus downgrades expressed as a proportion of the total number of estimates – has plunged to a post-GFC low.
The 12-month-ahead forecast for ACWI index earnings per share is down by 2.5% since mid-August.
Earnings revisions are a coincident economic indicator, correlating, for example, with global manufacturing PMI new orders. The revisions ratio had held up in mid-2019 despite a further fall in PMI new orders so the recent plunge may reflect a catch-up – second chart.
The extreme level of the revisions ratio is consistent with the view here that global industrial weakness is reaching a maximum in Q3 as the stockbuilding cycle moves into a low.
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