From the NYT article:
Amid all the grim economic data and a chorus of warnings of a fresh recession, one group on Wall Street has remained remarkably optimistic despite the dangers that may lie ahead — the research analysts who track individual companies.Typically bullish in the best of times, this group has barely budged on its expectations for earnings in the second half of 2011, even as the economists and strategists at the big brokerage firms have steadily ratcheted down their forecasts for overall economic growth.
That disconnect could prove painful for investors. On Friday, shares of Hewlett-Packard were punished after the technology giant reported results below analysts’ projections and warned them to bring down future numbers. Earlier in the week, similar shortfalls caused shares of Dell and Urban Outfitters to sink.
Let’s imagine this dynamic. Analysts, shareholders, firms expect earnings to grow at an unrealistic rate (why would they? because they have in the past). When the earnings fail to materialize, share prices plunge and firms lay off employees and sell assets until they believe they can return to the high earnings growth rate. At some (low) level of capital, the current earnings + growth rate will meet the high expectations — even if this requires idle workers and empty storefronts.