Stocks Have Gone Sideways While Earnings Have Tanked

|
Includes: SPY, VTI
by: Chris Ciovacco

Summary

Are stocks and earnings in step?

How much have earnings improved over the past seventeen months?

How is Q1 GDP shaping up?

S&P 500: Sideways For Seventeen Months

If stocks (NYSEARCA:SPY) are driven by earnings, then it would be logical to assume that during a period of sideways action in equity prices that earnings would also remain basically unchanged.

According to David Stockman's Contra Corner, earnings have been far from stable over the past seventeen months:

GAAP earnings of the S&P 500 in November 2014 were $106 per share on an LTM basis compared to $86.44 today. So earnings are down by 18.5%, meaning that the broad market P/E multiple has escalated from an already sporty 19.3X back then to an outlandish 23.7X today.

Has The Bigger Picture Improved?

This week's stock market (NYSEARCA:VTI) video examines the case for new highs in stocks relative to the case for a bearish reversal.

GDP Estimates Are Dropping

Earnings estimates are not alone in terms of downward revisions. Forecasts for Q1 growth have also been dropping in recent weeks. From CNBC:

The CNBC Rapid Update shows a sharp decline in the outlook for first quarter GDP from a high of 2.3 percent to just 0.6 percent. Weakness has come from several sectors, led by trade but also including retail sales, inventories and manufacturing.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.