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From David Rosenberg:

We are told repeatedly that the stock market has rallied because upon earnings season, a record share of companies are beating their estimates.

This is what is known as ‘fun with figures’. But you can’t fool all the people all the time.

When we look at our databases, we see that S&P 500 operating EPS for 2Q is now estimated to have come in around $13.94. Meanwhile, at the end of the second quarter, the consensus was sitting at $14.15; at the end of March, consensus estimates were at $14.84 and at the end of 2008, they were $19.92. So, where exactly was this “beat” in terms of earnings versus estimates? The second quarter came in 30% below what was being “projected” by Wall Street analysts at the end of 2008!

The third quarter has been cut already so many times that the hurdle is now $14.57. At the end of June, it was $15.05, on March 30, it was $16.68, and at the end of 2008, the third quarter estimate for this year was $21.11. So let’s get this straight — the S&P 500 has managed to advance 13% this year even though current quarter operating EPS has been pulled down by nearly 30% (and 45% since the end of September 2008). That would make Houdini blush. The year-over-year EPS growth expectation for 3Q swung from +32.3% at the end of 2008 to +4.5% on March 2009, to -5.7% at the end of June, to -8.7% currently. And the market is up 50% from where it was in March even though we had seen a 13 percentage point swing to the downside.


Source: Gluskin Sheff

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