15% of the S&P 500 has reported as of the 26th of January. So far, profits are down 64% year over year with the majority of the losses coming from the financial sector. Excluding financials profits are down 16%. Of all the industries reporting the financials are the only sector with real negative total net income.
Analysts are still expecting a -3% total decline in S&P 500 earnings this year which I believe is far too conservative, however, those estimates have been dropping fast. 2010 estimates are currently calling for 20% growth which I also believe is too generous. I filter through dozens of 10-Q forms daily and I have to say I have never seen things deteriorating so quickly. The visibility out even one quarter is non-existent. The only sector with any sort of stable earnings growth appears to be healthcare – primarily healthcare equipment companies. Even the mighty energy companies have seen sharp deterioration in earnings after the record drop in crude prices.
On the bright side, earnings expectations are falling fast now and my expectation ratio has turned positive on a weekly basis for the first time in over 18 months. This is a VERY bullish sign for long-term investors and a sign that we could be nearing an earnings trough.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.