Along with an interest cut by the Federal Reserve last week, the lack of disappointing earnings reports helped boost stock prices, lifting the Dow Jones industrials 8 percent between April 6 and April 20. Critics contend that some publicly traded companies lowballed their earnings predictions making them more appear more negative than needed to eventually boost confidence on Wall Street and beyond. 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. Then, if they match it, don t need to lay off 20 percent the work force and aren t going out of business, it bumps the stock up 20 percent, said Charles White, president of Avatar Associates, a New York-based money management firm.
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 of negative warnings 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, said Brian Belski, fundamental market strategist for US Bancorp Piper Jaffray. The phenomenon might be due in part to less than accurate predictions from stock analysts.