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Here's a surprising data point from S&P's Sam Stovall:

At the end of 2006, S&P equity analysts expected operating earnings per share [EPS)] for the S&P Composite 1500 (comprised of the S&P 500, MidCap 400 and SmallCap 600 indexes) to advance 10% in 2007, a healthy follow-up to the 15% gain seen in 2006. Yet with 2007's results nearly final, we now find that EPS for the S&P 1500 actually sank by almost 4% on a worse-than-expected fallout from the housing, subprime, and credit crises.

Within the S&P 1500, the S&P 500 index, which represents 88.5% of the market value of the 1500, likely registered a 4.2% year-over-year decline, while the S&P MidCap 400 (7.8% of the 1500) eked out a 0.1% gain, and the S&P SmallCap 600 (3.7% of the 1500) fell 5.6%.

The 1500's negative earnings results for the year were the result of deteriorating profit growth for the Consumer Discretionary and Financials sectors in particular, as these sectors posted declines of 17.8% and 33.3%, respectively, as of Feb. 19, 2008. The second half of last year was the toughest for the overall market, as it suffered through EPS declines of 9% in the third quarter and 22% in the fourth, a quarter that many dubbed the "kitchen-sink quarter" as companies wrote down everything—including the proverbial fixture

I was surprised by the full year number, thinking the first half would partially offset the second half.

Here's the amusing part: The same group of S&P equity analysts who were looking for a 10% advance in 2007 now expect a profits recovery in the second half of 2008. Their favorite sectors: Consumer Discretionary and Financials.

I expect this forecast to be every bit as prescient as the previous one..

Earnings: A Clearer Picture Emerges
Sam Stovall
February 26, 2008, 7:44PM EST