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Chrysler and General Motors are in the tank. Commercial mortgages can’t be found for many new projects outside of core urban centres. Large companies, such as American Express (NYSE:AXP), are still laying off staff. The M&A market hasn’t returned, except for the buyers looking for a steal-of-a-deal situation. Announcements of stimulus funds are finally part of our daily media fare, but little of the cash will flow until 2010 at the earliest.

But the market continues higher. At least so far.

This despite the fact that Equity Research Analysts have pulled in their horns regarding 2009 earnings growth for the S&P 500. When I touched on this in February (see prior post “U.S. Bank stock analysts still too rosy about 2009” February 26-09), S&P 500 earnings were projected to grow by 21.3% for 2009 (versus 2008). Sounded impossible at the time, and it was.

Research Analysts have knocked that figure back to 9.4% growth, which implies the market is currently trading at a 16.8x current year EPS multiple. Now that’s well above February’s estimated 2009 price/earnings multiple of the S&P 500 of 11.85x.

This new forecast of 16.8x is mildly cheaper than both 2007 and 2008’s 17.8x and 18.3x respectively.

For 2010, Equity Analysts are looking for 37.5% earnings growth for the S&P 500. Financials, Consumer Discretionary, Energy and Materials are all slated to have 2009 EPS growth of more than 90% next year. Which means the market is trading at just 12.2x forward earnings. Not far off the 11.85x multiple that Analysts were publishing on February 26, 2009.

Since that date, the S&P has rallied 18.7%. Sounds like a buy?

Not so fast. This from the New York Times a few days ago:

On Friday, economic data showed the American economy lost a further 539,000 jobs in April and the unemployment rate leapt to 8.9 percent — a sign that the United States might already be heading toward the worst case, although the job losses were less than Wall Street expected.

Despite the sobering outlook, the mood on Wall Street was generally upbeat after the rosier-than-expected assessment of the biggest banks. The stock market climbed, with the Standard & Poor’s 500-stock index gaining 2.4 percent on Friday.

“If there were holes in this, the market would have seen it,” said Stuart Plesser, an analyst at Standard & Poor’s.

Famous last words. I don’t subscribe to the theory that “if there were holes” in something, the market would have found them. Where were the predictive powers of the market on Bear Stearns (NYSE:BSC), Lehman (LEH), Citigroup (NYSE:C), General Motors (NYSE:GM), etc.? If we’ve learned anything over the past 27 months, it is that that just isn’t a reliable science.

What the market does know is that the chance of a Depression was averted with the suspension of the banking mark-to-market rules. That has fueled the post March 9th rally.

10 weeks ago, analysts thought 2009 earnings would grow 21.1%. Today they are counting on less than half that figure.

And in 10 more weeks, could it be zero?

Source: S&P Still Considers This Market Cheap