I couldn’t understand it. How could the earnings estimates be plummeting so rapidly, and nobody, but me, had noticed, or had been saying so. I felt like some kind of lone conspiracy theorist! Well, a friend sent me a link to a Fortune article dated today at 12:20 pm EST. I wish to lift an excerpt for you. You can also try this link: http://for.tn/1R6znXD?xid=for_em_sh
“The problem is corporate profits haven’t been growing. They have fallen for the last three quarters in a row. And expectations for profits in the first quarter have been coming down rapidly. Analysts now expect on average profits for the companies in the S&P 500 to fall 8% in the first quarter—a year ago the consensus forecast was for profit growth of 15%. One of those two things has to change. Falling profits and high stock market multiples is not a health regimen that will keep a bull alive for very long.” emphasis mine
It says ‘expectations for profits in the first quarter have been coming down rapidly’. Have they ever! I have been noting this steady decline for weeks now. And, while the article says that estimates have fallen 8% in the first qtr., by my own calculation, I mark it precisely at 8.24% in this qtr, and looks to be still on a declining trajectory. I’ll check them for all the indexes again this weekend. I also note that the P/E multiple on the average of all estimates in the 500 is currently 19.38, which is not low by any means.
Something will have to give. There are 2 variables in the equation, one being price and the other being earnings. While EPS is falling, and prices have been rising… the P/E Ratio has been expanding rather dramatically, and for no real good reason.
All the index chart patterns are still to be interpreted as being Bearish. And, oil is at $38.28, as I type this evening… not enough to rescue deeply indebted energy firms… not yet. Oil needs to get to at least $45 in the next few months, and there’s truly little real hope that it can do that, for reasons I’ve repeatedly stated, and the case has been made well at The Week.com, News, Oil Price. Check out their daily column. I’ve read no analysis that has made more sense than theirs. It is always brief and concise; just a few column inches each day.
Stocks are staring into their overhead resistance, and it’s not making any headway thru it yet. I personally do not expect it will… and, if it does, I’ll admit I was mistaken, and that every indicator I was relying upon had not been helpful. More later…
Watch it now… the assault on all of the overhead resistance commences TODAY! Oil is down to $38.15. But, Europe is rallying and our futures are well ahead overseas by .88 to 1.09% as of 8:00 am EST. This is going to be the show to watch! The assault on resistance commences, while oil is not high enough to save the overly-indebted, and while earnings estimates have been plummeting. Something’s going to have to give… my best guess is that it will be prices; as technicals have gone practically off the charts, and the fundamentals have been declining precipitously. Now, only trader/investor sentiment can make anything good, price-wise, to happen… and it can, as “the markets can remain irrational longer than you can remain viable.” Well, I’m largely out for now, and willing to let what is still in to rise… in the meantime, I’m not willing to ‘spit into the wind’!
O, too funny, the ECB, European Central Bank, has cut interest rates deeper into the negative to stimulate economic growth. They STILL haven’t figured out that it doesn’t work, and is, in fact counter-productive. The economy is people, and the people know something just is not right, and they’re putting their hands over their wallets, the more they learn of the lunacy the central banking fools are doing. Who, intuitively speaking, upon hearing banks have gone to negative interest rates, will think that’s got to be a good thing? Nobody, that’s who! They’ll all just go, “Hunh?!?!?” And nothing will turn economic activity off faster than uncertainty, and that funny little fear lingering in the back of the mind.
Here’s to your successful investing!
Harold F Crowell