Amid the grim economic reports that sent the stock market tumbling recently, a record number of companies issued warnings that first-quarter profits would be much worse than expected. Along with an interest cut by the Federal Reserve on April 18, the lack of disappointing earnings reports has helped boost stock prices, lifting the Dow Jones industrials 10.4 percent between April 6 and Friday. The payoff came when the companies either matched analysts' earnings predictions or beat them by a few pennies. They condition the street for the idea of lowered expectations.
Companies deny trying to manipulate investor reaction.
They say they try to give the public their best predictions on how market forces are affecting profits. In the second quarter, the number is expected to go even higher. Those that beat expectations did so by 3.7 percent on average. The trend has gone on as long as many market watchers can remember, says Brian Belski, a market strategist for US Bancorp Piper Jaffray. The phenomenon might be due in part to less than accurate predictions from stock analysts.