Have Earnings Expectations for the S&P 500 Finally Bottomed?

Since September of 2008 we have seen 2009's YoY earnings expectations for the S&P 500 steadily decline. You may recall that for the first half of 2008 many analysts were expecting an earnings recovery, and thus forecasting 20 - 25% growth in '09. The severity of the crisis was obviously not understood, and as events unfolded earnings and economic estimates were likewise adjusted resulting in a 38.1% decline between 9/26/08 and 11/20/08.

Below we charted the progression of 2009 estimates since February of 2008. Ignoring the jump in early March (General Motors reported a wider than expected loss for Q4 08 on 2/26/09 thus decreasing the denominator), it appears on the surface that expectations are beginning to bottom and have actually seen a recent upward revision. We would however question the significance of these recent changes since General Motors was removed on 6/3/09. If estimates continue to rise they could provide a catalyst for the next leg up.

click to enlarge

Comments

[Fred Voetsch:]

Likely analysts can't be more wrong than they've been in the past year or two.

The question now becomes: can corporations raise earnings? The strong headwinds from diminishing returns on cutbacks to continued consumer deleveraging to the rising unemployment rate to coming tax increases suggest that earnings may stagnate, if not continue their decline.

Then there's that pesky question of how we can maintain economic growth with interest rates so low and nowhere to go but up.

Jun 15 02:40 PM