Adam Parker On Market Guidance: Is The Windshield Different Than The Rear-View Mirror?

Morgan Stanley on Monday issued a market update, highlighting their United States equity strategy after a large number of companies posted earnings that beat analyst expectations. However, analysts noted that while 90 percent of the S&P 500 have reported earnings, with the average beating consensus estimates by 4 percent, the earnings forecast may be weaker than expected to reflect challenges in the global macroeconomic environment.

Analysts Adam Parker and Brian Hayes wrote, "Q4 earnings results show a pattern that's unfolding over prior quarters. We are seeing upside vs. incoming expectations, but weaker forward guidance and resilient profit margins in the face of muted revenue. However, winners are not being substantially rewarded while losers are being punished."

Morgan Stanley noted that more than four companies are issuing negative guidance vs. expectations for every one company that offers positive guidance for Q1 2016. This leads analysts to believe that earnings may be set at a low bar this year.

While Morgan Stanley sees positive earnings trends in areas such as large automobiles, online advertising spending and utility power demand, overall they believe that earnings may continue to be mixed, with data trends becoming increasingly more negative.