TW: To anyone out there pondering an aggressive move into the markets early in the new year.
From John Maudlin on the Big Picture Blog:
"...earnings estimates are dropping for the S&P 500, as analysts try and catch up with the reality on the ground. They are still behind the curve.
"...earnings estimates are dropping for the S&P 500, as analysts try and catch up with the reality on the ground. They are still behind the curve.
Let’s look at their estimates for earnings in 2008. They started at $92 in early 2007 and are now down to $48. This chart is not something to inspire confidence in stock analysts.
On a trailing one-year basis, that puts the Price to Earnings Ratio (P/E) at over 19 as of today’s close at 925, which does not make the market cheap. But last year’s earnings are history. What about 2009? Again, the analysts are in a race to find the bottom.
The current projections are for $42.26 for 2009. That makes the forward P/E 22. That doesn’t look like value at all, when the historical average is closer to 15.
Bulls would argue that the market is forward-looking and that all the bad news has been priced into the market. I would counter that the market has so far done a bad job of pricing in bad news, given the fall of the markets last year in the face of a recession. As I repeat incessantly, the US stock market falls an average of 43% during recessions. The stock market was not discounting a recession last January or even in May, even after a very serious financial crisis.
But how bad can it get? Analysts must surely by now have lowered their estimates to more realistic numbers. Shouldn’t we start to price in the recovery from here? Well, no, not if you look at the last recession.
In 2001, as-reported earnings were $24.67. Operating earnings in 2002 were $27.57. Does anyone think the current recession will be milder than the last one? Or shorter?"
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