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With the second-quarter earnings season fast approaching, chief executives are the least confident in the future they have been since the start of the COVID-19 pandemic, based on this metric.
The LERI, or Late Earnings Report Index, devised by market data company Wall Street Horizon, is currently sitting at its highest level since the fourth quarter of 2020, the first year of the pandemic.
The LERI tracks outlier earnings date changes among companies with a market cap of at least $250 million. The index has a baseline of 100; anything above that signals greater uncertainty about the future, while a reading below suggests greater visibility.
“The LERI is derived from many years of tracking Corporate Body Language, or the non-verbal cues that publicly traded companies send to the market both intentionally and unintentionally that impact volatility,” is how Wall Street Horizon Chief Executive Barry L. Star summed it up.
Academic research has found that when companies push the date of their earnings release to later in the quarter than usual, it suggests bad news to come, and executives are trying to stave off the inevitable disappointment.
Equally, when they move the release date to earlier in the quarter, it suggests good news, making them want to run out and share it quickly.
The current LERI reading is 155.
Source: Wall Street Horizon
As Wall Street Horizon’s vice president of research Christine Short notes, the LERI for this quarter won’t be calculated until the big banks report on Friday.
As of July 10, there were 31 late outliers and 18 early ones.
“Typically, the number of late outliers trends upwards as earnings season continues, indicating that the LERI is poised to get even worse from here as corporations are increasingly more worried heading into the second half of the year,” she said.
Another recently published data point also signals that CEOs are pessimistic, she added. The Measure of CEO Confidence from the Conference Board fell to 42 in the second quarter from 43 in the first. A reading below 50 suggests they are still “largely pessimistic about what’s ahead in the economy.”
The second quarter will kick off on Friday with numbers from JP Morgan Chase & Co. Inc.
JPM,
Citigroup Inc.
C,
and Wells Fargo & Co.
WFC,
See also: Megabank profits on tap after eventful Q2 of bank failures and climbing interest rates
Related: Jefferies upgrades JPMorgan Chase to buy from hold ahead of Q2 profit update
Investors will be keen to see whether companies and their leaders are as downbeat as the many economists who are expecting the economy to tip into recession, or those that reckon it’s already in a recession.
First-quarter earnings calls mostly found executives expecting business to improve in the second half, as inflation is tamed by higher interest rates and input costs come down.
For now, forecasts support that view.
S&P 500 companies are expected to show a 7.2% decline in per-share earnings in the second quarter, according to FactSet data, followed by a 0.3% rise in the third quarter and gains of 7.8% for the fourth quarter.
The S&P 500
SPX,
has gained 15% in the year to date.
Read now: This earnings season, expect companies to keep margins high ‘the usual way, by firing people’
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