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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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.
