Amid the surge of earnings preannouncements that roiled the stock market in September and early October, most commentators saw signs of an economic slowdown. They were only partly right, because quarterly warnings about corporate profits will be more common now that CFOs risk SEC sanctions if they're caught telling their favorite analysts to shade their numbers.
"It's now safer to preannounce than to jawbone" if estimates are too high, says Chuck Hill, research director at First Call/Thomson Financial. Passed in August, the SEC's new regulations against selective disclosure spurred a record number of negative preannouncements in the third quarter. As of October 10, 337 companies--including DuPont Corp., Intel Corp., and Eastman Kodak Co.-- said they would not meet expectations, up 20 percent over a comparable period in 1999. Preannouncers generally were hammered by the market for their forthright disclosure. The carnage prompted hedge fund manager James J. Cramer, in a recent commentary on TheStreet.com, to observe that without the hidden hand of guidance, "the world will be fairer, but far more rocky."