S&P 500 Earnings vs GDP

[Dogpile 10]

Reported GDP by the government was a healthy +4.9% last quarter. Meanwhile, S&P 500 forward earnings estimates have been in freefall lately. Note the stability all year long until late August, when estimates began to trend down. The market made a new high while estimates began to fall and then the bottom came out of estimates in November.

 

[MrPaul 10]

Reported GDP by the government was a healthy +4.9% last quarter. Meanwhile, S&P 500 forward earnings estimates have been in freefall lately. Note the stability all year long until late August, when estimates began to trend down. The market made a new high while estimates began to fall and then the bottom came out of estimates in November.

 

 

Interesting stat Dogpile..

 

Did you compile the info or find it somewhere?

[Dogpile 10]

I got the earnings data from a research service I get -- I entered the data myself to create the chart.

 

Note that Q3 had tons of write-downs so Q3 earnings were really weak -- this is why I am using forward earnings estimates and not reported results. Forward estimates reflect forward expectations and thus changes in forward estimates reflects changes in expectations.

 

Here is 1 more look. Note that Q4 earnings have been marked down from what was double-digit growth (+10 to +12%) down to 0% as of today. Q1 2008 has started to come down but still stands at +7%. Thus, you have a situation where either:

1) Q4 estimates have been marked down to beatable levels or,

2) 2008 earnings expectations remain too aggressive and will need to be marked down.

 

Many are discussing statistics to show we are not in recession, ie, employment/GDP etc.... I am saying the more important thing to watch is what profits are doing. As an investor, who cares if you are in recession or not when earnings are falling this hard?

 

given what has happened to earnings over last few months --- 2008 earnings estimates look pretty aggressive at this point -- and may need to come down. the extent to which is the big question. The global economy has been booming. Begs the question of what happens to earnings if global economy does not boom in 2008. It could get ugly. But that remains to be seen. I will just continue to monitor the situation.

 

 

[Dogpile 10]

updating this chart. the freefall continues... the 'rate of change' of estimate cuts sure smells like a recession: