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With 80% of the S&P 500 reporting Q4 figures, the results are staggering.   Net income is down 38% year over year.  On an “as reported” basis, earnings are going to come in with their first ever negative quarter – EVER!   So far, we are down 38% from peak to trough on an operating basis and 65% on an “as reported” basis.  During the 2002 recession earnings fell 31% and 54%, respectively, from peak to trough.   This quarter is beginning to look very much like a kitchen sink quarter.  That doesn’t mean the stock market rebounds in the next few months, but the next few quarters is not unlikely.

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On the bright side, the expectation ratio continues to improve marginally.  This is a great sign that expectations are coming more and more in-line with reality.  As I’ve previously said, we will need two things to occur before any sustainable rally can ensue: earnings have to begin to show some signs of improvement and expectations will have to be very low, i.e., beatable.

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