I might bore you to death but still all big recessions/depressions have turned around 8 times earnings. A recession ends around 14-16 months a depression rather 40 months. The numbers in the following article refer to 09 earnings and many think we turn around in 2010 which I sincerely doubt. We have pretty much the same situation Japan had 20 years ago as those banks pumped up values of their balance Cheats beyond believe and the measures to remedies were also the same only they had healthy economies around and an uprising China still the Index is after 20 years at its low at 20% value from the tops of 1989.
Global markets have years and horror magnitudes to drop to make up for the excesses of 75 years. Use the rally we will see starting mid March to get rid of stocks and sit tight thereafter as times will have to get worse much more than many can imagine. No one in any government can deal with this crises especially not the current mostly rotten stuff in all administrations as they are lobbyists and or corrupt. Democracy will have to go through a test as even Obama had to spend record Ad-money to get elected. That's not what a democracy is about and not the right foundation for a sound society. Things got out of control on many ends not only in Wall Street and usually only a deep crises can heal those structural cancer issues. Obama is very disappointing with every day we see him in action because he just promises what people want to hear and without any diligent thinking. Printing money without value does not heal economies others tried that before and no one succeeded. I think he goes the wrong path as he has no effort to go to the source to the problem. What he tries to do is to take a painkiller to heal the cancer that does not work. It might bring a short relief but at the same time the painkiller destroys important other organs so the price is too high for the short relief- that will even make the cancer worse at some point.
More Earnings Setbacks Ahead in '09
As long as the real numbers continue to trail optimistic analyst estimates, it's hard to imagine a sustained stock rally.
DISMAL FOURTH-QUARTER FINANCIAL results, grim corporate guidance and a powerful recession have finally forced Wall Street analysts to get real about future earnings and ratchet down expectations for a comeback this year.
But here's the bad news: Their recent downward revisions have probably not gone far enough.
Since Christmas, analysts have cut 2009 earnings-per-share estimates for the Standard & Poor's 500 by 20%, abandoned absurdly optimistic hopes, and slashed estimates for every sector.
Still, estimates have not dropped enough, and until they do, companies will keep missing expectations, making a sustained stock-market rally near impossible.
"Things will get a lot worse before they get better," says Dirk Van Dijk, research director for Zacks Investment Research.
Profits generated by big U.S. companies plunged 42% year over year in the fourth quarter of 2008, causing a 12% decline for the entire year. And that follows a 3.5% profit drop in 2007 from a year earlier.
The sell-side analyst crowd on Wall Street really missed the boat. At Christmas, the Street expected flat profits in the fourth quarter of 2008, and predicted a 6% increase in 2009. (See Weekday Trader, "Hope Springs Eternal for Profits," Dec. 22, 2008.)
Now, profits are expected to tumble 13.8% to $64.02 a share for 2009, the index's worse profit performance since 2003, according to a Thomson Reuters First Call tally of analyst estimates.
Still, strategists -- the top-down thinker's on Wall Street -- think even that number remains 10% to 20% too high.
It's not surprising. Traditionally, bottom-up earnings estimates, which are based on analysts' estimates, are usually more optimistic than top-down forecasts based on economic data.
Historically, strategists have tended to be more accurate, according to S&P. And after last year's unimpressive track record, bottom-up estimates hold little sway with investors.
Zacks' Van Dijk says "it's a fantasy" to think that the S&P 500 will earn in the mid-$60s a share this year, as the sell-side analysts currently believe. "Around $50 is far more reasonable," he says.
Corporate profits have fallen year over year for six consecutive quarters.
The Street expects that streak to end in the fourth quarter of 2009 when the financial and consumer-discretionary sectors post huge gains fueled largely by easy comparisons to dismal performances last year.
Not everyone is that optimistic.
Sell-side analysts don't always consider economic trends when predicting earnings and tend to rely too much on corporate guidance.
But as more large companies forgo estimates amid an uncertain economic environment, analysts are left flying blind.
Meanwhile, companies that do issue projections are increasingly warning that earnings could fall short of expectations.
"Analysts will really have to do their homework this year, which is going to be very challenging in such an uncertain economic environment," says Brian Rauscher, director of portfolio strategy for Brown Brothers Harriman.
Bright spots will be hard to find in 2009.
If you exclude financial and consumer discretionary -- the two sectors expected to rebound most robustly in 2009 from last year's travails -- then profits will fall almost 18% this year, according to Ashwani Kaul, Thomson Reuters' director of research.
Health care, utilities and consumer staples are the farthest removed from financial and economic turmoil. But estimates for 2009 have dimmed considerably in recent weeks.
Meanwhile, retailers, technology, home builders, energy, industrials, materials, automobile manufacturers and financials all face considerable headwinds.
Hope runs high that the $789 billion economic stimulus plan moving through Congress, a multitrillion-dollar bailout of financial institutions, and other government policies will stabilize the financial system and rejuvenate economic growth.
Still financial fundamentals remain unclear. Lower oil prices have helped consumers, airlines and industrials, but bode ill for energy-sector profits.
Moreover, many economists seem to be pushing back the timing of the next economic recovery as evidence mounts that this recession is deeper than previously imagined. President Obama, for his part, has warned that a recovery may not come until 2010 (see Up and Down Wall Street Daily, "Wait 'Til Next Year," Feb. 10, 2009).
It's no wonder that strategists remain circumspect.
Robert Doll, chief investment officer of global equities at BlackRock, expects the S&P 500 to earn $55 to $60 a share in 2009. S&P's top-down estimates forecast $55 a share in profits.
And Banc of America Securities-Merrill Lynch expects the S&P 500 to earn $42 a share.
Since hitting a low on Nov. 20, the Dow Jones Industrial Average has climbed 5%, while the S&P 500 has risen 11%. And the Nasdaq Composite Index has gained 17%.
"Investors believe we have already taken stock prices down enough," to reflect plunging earnings," says Ed Yardeni, chief investment strategist for Yardeni Research. "Investors are saying that they figured things out long before the analysts did."
With dividend yields averaging 4.7%, the utilities sector remains a popular sector among defense-minded investors. It also remains one of four sectors expected to grow profits in 2009, though by just 2%.
Health care, meanwhile, will fare only slightly better. After climbing 7% last year, profits are expected to climb just 3% this year.
Profits generated by the industrial sector will fall 19% this year. And the Street expects profits generated by the technology sector, to fall 15% for all of 2009. Analysts have been cutting estimates since July, when the sector had been expected to grow profits 18% this year.
Energy, which buoyed S&P 500 earnings for the past two years and rose 21% in 2008, is one of the index's biggest sinkers. Analysts expect profits to fall 43% in 2009 thanks to a drastic drop in crude-oil prices, which soared to a peak of more than $140 a barrel in July and have since fallen to under $40 a barrel.
Of course, profound uncertainty continues to pervade financial markets and the economy following the historic upheavals of 2008.
A lot hinges on whether the government's massive efforts to stimulate the economy, rescue the banking industry and unfreeze credit eventually work, and how long it will take.
Will oil prices spike again or the U.S. dollar resume its decline, both of which will help S&P earnings?
In view of these questions, consensus Wall Street estimates calling for an almost 14% drop in corporate profits this year may not be grisly enough.
And with some strategists looking for $55 or less a share in S&P 500 earnings for 2009, the resulting price-to-earnings multiple of 15 times that forecast doesn't look very cheap.
None of this bodes well for stock investors.
A Moving Target
Analysts have been slashing profit projections repeatedly since last quarter. Still, investors say consensus earnings estimates for 2009 for the S&P 500 are still too high.
| Sector | 1Q '09 (Estimate) | 2Q '09 (Estimate) | 3Q '09 (Estimate) | 4Q '09 (Estimate) | 2009 (Estimate) |
| Financials | -37% | -39% | 294% | *NA | 22% |
| Energy | -51% | -55% | -55% | -17% | -43% |
| Technology | -29% | -23% | -19% | 12% | -15% |
| Industrials | -30% | -26% | -17% | 3% | -19% |
| Health Care | -2% | 1% | 3% | 4% | 3% |
| Consumer | -57% | 31% | 63% | 342% | 6% |
| Discretionary | |||||
| Consumer Staples | -5% | -4% | 2% | 0% | -1% |
| Materials | -68% | -55% | -51% | 241% | -44% |
| Telecommunications | -14% | -20% | -7% | 11% | -22% |
| Utilities | -3% | -1% | 4% | -1% | 2% |
| Average growth rate | -29.6% | -25.7% | -11.3% | 70% | -13.8% |
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