Last week, we posted on the 4-week change in third quarter earnings estimates for S&P 500 sectors. As shown below, most analyst estimates had not yet declined by much even though the credit crunch had clearly been affecting things since late July. Estimates for the earnings of Financials in the third quarter had only fallen by 1.35% over the past 4 weeks.
Now one week later, the estimates have begun to fall. Third quarter earnings estimates for Financials are now down 2.52% and 1.14% for the S&P 500 as a whole. Technology and Telecom, however, are two sectors whose estimates have risen. We expect estimates to continue to fall, but with each decline, the market will react less and less. We're baffled that the market reacts at all to downgrades in the Financial sector at this point. We saw much of Tuesday's declines attributed to Merrill's downgrade of some stocks in the sector. But anyone who did not see estimate cuts coming must have been asleep at the wheel.