The mainstream financial media is repeating the yearly claim that analysts say the second half of 2016 will be better than the first.
The media is reporting that analysts believe earnings growth will come in for Q3 2016 at +1.1%, and +7.4% for Q4 2016.
This prediction for stronger earnings in the second half of 2016 occurs every year, at this time of year, in the mainstream media.
What is the reasoning for these fantastic projections of earnings growth? What is the catalyst that's going to make magical customers appear out of thin air with money to spend? Fool me once, shame on you. Fool me twice, shame on me.
In 2015, I Was A Sucker
In 2015, I fell for it. It seemed reasonable that the second half of 2015 was going to get stronger. I don't know why it seemed reasonable, it just did. Maybe the idea of oil falling seemed like it would have boosted consumer spending. I just bought what the media was shoveling and didn't question it.
The prediction by these so called "analysts" was that earnings would grow by +1.6% in the second half of 2015. The actual number was a contraction of -2.5%.
Think about it. Man can't predict the weather more than two weeks out. How in the world could anyone predict earnings six months out?
The US economy has been slowing for more than a year now. Why in the world would earnings suddenly reverse and start to head back up? What is the catalyst for earnings growth? To say that earnings are going to grow, you are also saying that consumer spending is going to grow. How can that be when wages are low and good-paying jobs in the manufacturing and energy sectors are gone?
Yeah, all those people that work at McDonald's and Walmart, Yahoo! better get ready for all that minimum-wage induced spending coming in the second half of 2016. It's absurd when you take the time to think about the mainstream media's pitch that the latter half of 2016 is going to show earnings growth.
Somebody at CNBC or Fox Business needs to practice better journalism and interrupt these fortune tellers and say, "Why! Are you just pulling out numbers from the clouds? Why are people suddenly going to have more money and start spending more in the second half of 2016? Because, in essence, that's what you're saying."
Our friends at FactSet published a report that shows these so called "analyst" predictions on second half earnings are usually wrong. FactSet writes, "Over the past five years (2011-2015) by June 28, analysts have overestimated the actual earnings growth for the second half of the same year by nearly 5 percentage points (4.7 percentage points)."
Neutral predictions would dictate that the dataset would show some years analysts were over on their predictions, and some years they were under. The outcome would create a somewhat random distribution of analyst forecasts above and below actual earnings.
Instead, FactSet's research shows that every year since 2011, analysts have been over actual earnings on their estimates. These consistent overestimates suggest that analysts' predictions are phony. They are made up out of nothing with the intent of manipulating the average amateur trader. Beware.