Analysts Cut S&P 500 Profits Forecast; Earnings Estimates Still Overly Optimistic; Stocks Not Cheap

Mish’s Global Economic Trend Analysis: Analysts Cut S&P 500 Profits Forecast; Earnings Estimates Still Overly Optimistic; Stocks Not Cheap #navbar-iframe { display:block }@media print { div#container { width: 100%; } div.post-footer-comments, div.js-kit-ratings, div.js-kit-comments, div#blogheader, div#navigation, div#left, div#right, div#blogfooter { display: none; height: 0px; width: 0px; } div#content { width:100%; } div#middle { width:100%; } td.tdcontentmiddle { vertical-align: top; background: #ffffff; width: auto; margin-left: auto; margin-right: auto; } div.post-body { width: 100%; font-size: 14px; padding: 10px; } div.postfooterad { display: none; } }MISH’S
Global Economic
Trend AnalysisHomeContactSitka PacificRecent Posts

Featured LinksGoldMoney: The Best Way to Buy Gold & SilverDollar Collapse News on the Dollar’s Death SpiralMinyanville Business and Market NewsPatrick Housing Crash News Top Housing and Commercial Real Estate NewsGet Involved The State of the Union’s Finances: A Citizen’s Guide Balanced Budget Ammendment Sign the Balanced Budget Petition Abolish The Fed Sign the Petition Jekyll Island Edward Griffin – Creature From Jekyll Island 3 “Implode-O-Meters”Mortgage Lenders
Banks
Home BuildersRecommended BooksTomorrow’s GoldPlunder! How Public Employee Unions are Bankrupting the NationCase Against The FedThe Dollar MeltdownDear Mr. BuffettThe Dollar CrisisWhat Has Government Done to Our Money?Economics In One LessonEconomics For Real PeopleClean Money – Picking Winners In The Green Tech BoomMaster TradersThe Disciplined InvestorPsychology of TradingEmpire of DebtJust What I SaidThe Coming Collapse of the Dollar Trading in the ZoneConfessions of a Subprime Lender The Great Housing BubbleThe Monetary Elite vs. Gold’s Honest Discipline Alphabetical LinksActing Man Austrian BlogAutomatic EarthBig PictureBonnie KristianBloomberg BondsBoom Bust BlogCalculated RiskCharles GoyetteChina Financial MarketsChris MartensonContrary InvestorCredit Card ForumDaily PaulDaily KOSDaneric’s Elliott Waves Decline of the Empire Disciplined InvestorDollarCollapseEconomics of Oil EmpireEW Trends and ChartsFedUpUSAFinancial SenseFreebuck CommentaryGeorge Washington BlogGloomBoomDoom – Marc FaberGo LeverageGrowthologyHamzei AnalyticsHowe StreetHuffington PostInfectious GreedJim KunstlerKathy LienLife after the oil crashLudwig von Mises Institute Mark Hanson Market OracleMarket TickerMauldinMinyanville Money BlogsNaked CapitalismNathan’s Economic Edge Nouriel RoubiniNowAndFuturesOf Two MindsOil DrumPaper BoatPatrick Housing Crash NewsPension TsunamiPhysician’s Money DigestProphet Without ProfitQFinanceReal Clear MarketsRobert SalomonRolfe Winkler Option ARMageddonSafeHavenSan Diego Housing ForecastShanky’s CommentarySharelynx GoldSilicon InvestorSovereign SpeculatorStreetwise ProfessorTrading Psychology WeblogUrban DigsYou Walk Away BlogZero Hedge24h Gold321 Gold.Monday, October 04, 2010

Analysts Cut S&P 500 Profits Forecast; Earnings Estimates Still Overly Optimistic; Stocks Not Cheap

Bloomberg reports S&P 500 Profits Cut for First Time in Year by Analysts.For the first time in more than a year analysts are cutting their forecasts for Standard & Poor’s 500 Index earnings, jeopardizing gains from the biggest September rally since World War II.

Estimates for S&P 500 companies’ combined 2011 profit fell as low as $95.17 last month from an August high of $96.16 and posted the first quarterly reduction since the three months ended June 2009, according to more than 8,500 analyst forecasts tracked by Bloomberg. The revision came as the benchmark gauge for U.S. equities rose 8.8 percent last month, the largest September advance since 1939.

Estimates show S&P 500 earnings may rise 15 percent in 2011, down from a forecast of 20 percent growth in March, Bloomberg data show. The S&P 500 slipped 0.2 percent to 1,146.24 last week amid lingering concern that Europe’s government debt crisis may threaten the economic recovery.

Companies in the S&P 500 may report profits rose 23 percent on average during the third quarter, according to forecasts tracked by Bloomberg. That’s about half the 49 percent growth during the second quarter and the 52 percent increase from January through March.

Michael Levine of OppenheimerFunds Inc. says the outlook for lower earnings is already reflected in stock prices after the S&P 500 fell as much as 16 percent between April 23 and July 2. He predicts equity prices will keep rising as investors grow more confident that the U.S. economy isn’t headed for the second recession in three years.

“Equities are cheap,” said Levine, a money manager at New York-based OppenheimerFunds, which oversees about $165 billion. “The broader markets are assuming there’s a slow but gradual recovery. As long as that’s the message, the markets will be fine.”

“Stocks go up and they raise their earnings estimates, the markets go down they start reducing estimates — a lot of it has to do with the psychology,” said Jeff Saut, chief investment strategist at Raymond James & Associates, which manages $235 billion in St. Petersburg, Florida. “Over the long run, investing is indeed all about the earnings, but over the short term it’s all about psychology.”Earnings Estimates A Mirage

It’s important to understand why earnings have gone up: Trillions of dollars of stimulus worldwide that is not sustainable. Bank earnings estimates have been inflated by massive extend-and-pretend games encouraged by the Fed with a blind eye from the FASB.

Moreover, the FASB has delayed mark-to-market accounting rules and has still not forced banks to bring SIVs and off-balance-sheet assets back on the books. Those assets are held at inflated values.

It is disgusting to hear those like Michael Levine of OppenheimerFunds Inc. says “equities are cheap”. Equities only look cheap if you use absurd forward earnings estimates, and ignore future writeoffs and other “one-time” items that seem to have a way of recurring with remarkable regularity.

Stocks Not Cheap

Stocks are not cheap an besides, share prices are not always a direct function of earnings. I talked about that in Sure Thing?!
Earnings vs. Share Prices

Right now, sentiment is so bullish and earnings estimates so lofty there is room for hefty earnings expansion that falls short or estimates. Buying stocks that miss wildly optimistic earnings estimates is not likely to work out well.

Furthermore, even if earnings do come in on target, there is no historic guarantee that stock prices follow. For example, on March 31, 1973 the S& P was at 111.52 with trailing earnings of $6.80. Seven years later, on March 31, 1980 the S&P was at 102.09 with trailing earnings of $15.27.

Thus, over a span of seven years, earning rose 125% while stock prices fell 8.5%!

What happened? The PE ratio on the S&P fell from 16.40 to 6.68, that’s what.

Moreover, those were real earnings then. Now, corporations hide garbage in SIVs with the blessing of the Fed and analysts cite pro-forma earnings that throw out “one-time” charges that occur with increasing regularity.

Thus, anyone who says stock prices will go up because earnings go up, does not understand history.Fancy Numbers

“You need pretty fancy GDP numbers to get to $95 a share in earnings next year,” said Robert Doll, vice chairman of New York-based BlackRock Inc., which oversees $3.2 trillion. “Our view is that they’re still a little too high, and that nobody believes them.”

Robert Doll is half-right. He’s right in that “You need more that fancy earnings to get to $95 a share”. He’s half-right because the consensus believes. Bear in mind we could still see a bit of earnings expansion, but with the inventory replenishment and stimulus coming to an end, and with consumers heading back into a shell, it will not be sustainable.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Bookmark and ShareAnalysts Cut S&P 500 Profits Forecast; Earnings Estimates Still Overly Optimistic; Stocks Not Cheap
Posted by Michael Shedlock at 2:28 PM…. Print…. Email

To sign up for a free copy of our Monthly Client Newsletter, please register your email address at the bottom of the Sitka Pacific Commentary Page.

Buy Gold and Silver Online at GoldMoney
The Best Way to Buy Gold and Silver

Disclaimer:The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Comment Guidelines: Comments should be succinct, constructive and relevant to the story. We encourage engaging, diverse and meaningful commentary. Comments that include personal attacks, racial, religious, or ethnic slurs are not permitted. We continuously review and remove any inappropriate comments.

Analysts Cut S&P 500 Profits Forecast; Earnings Estimates Still Overly Optimistic; Stocks Not CheapComments(0)

Newer PostOlder PostHomeSubscribe to:.About Mike Shedlock Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Continue reading…    
 Mish Audio VideoMish with Marc Faber 2010-03-12
“Inflation or Deflation?” Debate: Mish vs. Dr. Doom

On the Edge with Max Keiser 2010-02-12
Spotlight on China, Japan, Jobs, Pensions, Part 1

Spotlight on China, Japan, Jobs, Pensions, Part 2

Tech Ticker 2009-12-09
“Bank Lending, Jobs, The Great Retrace

King World News October 30 2009
Mish and Eric King discuss Gold, the Stock Market, the US Dollar, Sideline Cash, China, and US real estate

May 2009: My Speech at Google – on Blogging and the Economy
Thoughts on Blogging and the Economy – Speech at Google

Podcasts Every ThursdayHoweStreet

May 18, 2009Jay Taylor and Mish discuss deflation and other issues on Voice America

April 27, 2009
The Lew Rockwell Show – “It’s Fallen and It Can’t Get Up”

April 26, 2009
TDI Podcast 106: ZeroHedge and Mish-O-Nomics

January 25, 2009TDI Podcast 92: An Unavoidable Depression? (Dent and Shedlock)

January 7, 2009Commodity Watch Radio – 2009 : Mish and Mike Hampton Give Their Views

November 12, 2008
The Lew Rockwell Show

October 23, 2008
TDI Episode 80: Predicting another 40% DOWN

October 17, 2008
Commodity Watch Radio – A look at the markets Michael Hampton, Mish

August 24,2008
Commodity Watch Radio – Inflation or Deflation? Part 1 James Turk, Michael Hampton, Mish

 John Dennis Beat Pelosi Mish Endorsement of John Dennis  Lawson for Congress Mish Endorsement of B.J. Lawson  Doug Cloud For Congress Mish Endorsement of Doug Cloud  
 
 
Calculated RiskLoading…naked capitalismLoading…Steve Keen’s DebtwatchLoading…oftwomindsLoading…Acting Man Austrian Economics DiscussionLoading…Copyright 2009 Mike Shedlock. All Rights Reserved.View My StatsHomeAboutContactSitka Pacific.js-kit-comments { background-color: #ffffff; } white-space: nowrap; color: #ff0000; margin: 0px 0px 0px 0px; padding: 0px 0px 0px 0px; }.js-singleComment { font-size: 9pt; color: #000000; line-height: 1.0em; margin: 0px 0px 0px 0px; padding: 0px 0px 0px 0px; font-family: Verdana, Helvetica; border: solid 1px #c0c0c0; text-align: left; }

View the Original article

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s