Tag: S&P 500 earnings

S&P 500 EARNINGS HAVE FALLEN AND CAN’T GET UP

It’s a long way down folks. S&P 500 earnings are already down 12% from their all-time highs. They reached these heights due to the Federal Reserve ZIRP and QE, along with the pocket protector wearing accountants at the FASB knuckling under to Bernanke and Geithner and allowing the Wall Street banks to report fake profits. Reversing hundreds of billions in loan loss reserves booked in 2009 while “earning” billions from parking money at the Fed has allowed Wall Street banks to report $700 billion of fake profits since 2010.  

The massive corporations that make up the S&P 500 have generated increasing profits by refinancing their debt at the artificially lowered rates from the Fed, raising prices, moving jobs to foreign countries, and giving their workers 2% raises. Revenue growth among the S&P 500 has been non-existent. The game is up. There are no more employees to fire. There are no more loan loss reserves to reverse. There is no more debt to refinance. QE is done. The Fed can’t lower interest rates below 0%.

Profits are falling and will continue to fall. The stock market will follow.


Chart of the Day

With Q2 earnings largely in the books (over 97% of S&P 500 firms have reported), today’s chart provides some long-term perspective on the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today’s chart illustrates the dramatic nature of the earnings plunge during the financial crisis as well as the recovery that followed — a recovery that took earnings from levels not seen since the Great Depression to a new record high. Over the past two quarters, however, S&P 500 inflation-adjusted earnings have declined by a significant 12% from their record highs — a significant concern going forward.


S&P 500 EARNINGS COLLAPSE

Stocks are already overvalued by 100% by every historically accurate valuation model used over the last 100 years. The S&P 500 EPS dropped by 3.7% last quarter versus the previous year. Their actual earnings dropped by more than 5%. These mega-corps have been buying their stock back at a record rate, even though the market is at all-time highs, reducing the number of shares and artificially boosting EPS. It’s good for their Executive bonuses, don’t you know.

The Atlanta Fed is already estimating only a 1.2% GDP in the first quarter of 2015. It will be negative when everything is said and done. Manufacturing new orders have declined for 6 consecutive months. This only happens just prior to a recession or during a recession. Take your pick.

One of the major reasons manufacturing is faltering, besides the global recession, EU disintegrating, Japan blowing itself up, and China’s real estate boom going bust, is the tremendous appreciation of the USD. Companies selling US made goods in foreign countries see the price of their goods rise, as the dollar appreciates. It has appreciated 20% in the last 8 months against the basket of all foreign currencies, and now sits at an 11 year high. It is now 33% higher than the 2008 lows.

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LOOK WHO’S WINNING

If you don’t think this country has turned into a corporate fascist oligarchy, just look at the S&P 500 earnings chart below. Even though real median household income is at 1989 levels, real median net worth is 40% below 2007 levels,  food and energy prices have risen,the percentage of the population working is at 1978 levels, the number of people on food stamps tops 46 million, and total debt to GDP exceeds 350%, somehow the profits of the 500 largest companies in America are at record highs.

Janet Yellen can pontificate about the ignorant masses saving more money for their future, but she and her Federal Reserve cronies are the reason for this dysfunctional, corrupt corporatocracy run by and for the benefit of bankers and corporate executives. Zero interest rates, printing over $3 trillion and handing it to their owner banks, and rigging the financial markets for their friends has gutted our economy and left the middle class dying on thr side of the road.

The biggest corporations in America haven’t expanded their profits by growing their businesses. They’ve done it through financial engineering, low interest debt, firing workers, and keeping wages below the level of inflation. These earnings are an illusion built upon easy money from the Fed. There has been no real recovery in the real world. If you think the collapse in earnings in 2009 was epic, you ain’t seen nothing yet.

Chart of the Day

With Q3 earnings season well underway, today’s chart provides some long-term perspective on the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today’s chart illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low which brought inflation-adjusted earnings to near Great Depression lows. Since its Q1 2009 low, S&P 500 earnings have surged to all-time record highs. To further illustrate the significance of the current corporate earnings recovery, consider that the run-up in real earnings from Great Depression lows to credit bubble peak took over 74 years. The run-up from financial crisis lows to today has been similar in magnitude (actually slightly more) but was accomplished in a mere five years. Over the past six months, however, the upward trend in corporate earnings has slowed but continues to make new all-time record highs.

BULLISH!!!!

How could corporate profits at all-time highs, with the largest companies in the world reducing their earnings projections at a record pace, be anything other than bullish for the stock market? Wall Street isn’t pumping and dumping money losing IPOs like there is no tomorrow because they know what is just around the corner. Record margin debt and record levels of bullishness never end in tears. Corporate insiders selling their own stocks at an all-time record pace surely isn’t a warning sign. The muppets have finally been lured into the market, as mutual fund flows into stocks have picked up in 2014. We all know what happens to muppets. Ask Goldman. Every warning sign is flashing red. CNBC and the Wall Street shysters assure you it’s the best time to buy. Just like the National Association of Realtors told you it was the best time to buy a house in 2005. Everything is bullish!!!

According to John Butters, senior earnings analyst at FactSet, 93 out of the 111 companies in the S&P 500 that have issued an earnings outlook for the first quarter have guided below Wall Street’s consensus estimate. That’s the second-highest number of companies issuing warnings since FactSet began tracking guidance data in 2006. The highest number came just three months ago — for 2013’s fourth quarter.