Sunday, February 15, 2009

S&P 500 Earnings ReDux

This past Friday, the senior index analyst at Standard & Poor's (S&P) released a statement regarding equity earnings. Not only would the 4th quarter of 2008 mark the sixth consecutive quarter of falling earnings for the S&P 500, but it would be the FIRST NEGATIVE EARNINGS QUARTER EVER. In other words, the index as a whole posted a quarterly loss. In addition, they are forecasting another quarter of declining earnings. This seventh consecutive quarter would become the worst streak in the index's history.

This has prompted another look at equity index levels:

My guess, 2009 earning for the S&P 500: $31.70

Average earnings yield for the S&P 500: 4.882%

S&P 500 Index level: 649.18

Dow Jones approximate equivalent: 6,200

This is a substantial drop from current levels: 827 and 7,850 respectively. Might they fall that much? Maybe, but the important thing here is not jump into the equity market without thinking about the earnings prospects of these companies. As I have mentioned in previous posts, GDP will have to fall dramatically to clear the credit market. We are not out of the woods yet.

Please click on the below graph to expand.

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