Saturday, February 14, 2009


The downturn is taking its toll on earnings. Marketwatch recently reported that quarterly earnings for the S&P500 will be negative for the first time ever. Here is a chart tracking the S&P500 and 12 months rolling earnings based on the monthly PE ratio reported by S&P. (The S&P500 closed in Dec at 903.25, for that month S&P then reported a monthly PE on 12M rolling earnings of 19.59 implying 12MrE of 46. Note however that earnings get revised after the monthly PE has been published and hence for recent data this earnings series differs from the bottom up estimates that S&P reports here)

12 months rolling earnings are now ca 46 down 46% from the peak of 85 reached in June 2007.
The current correction in earnings is already among the most severe as the following chart of log earnings illustrates and it does not yet consider the latest revisions. Using the last reported bottom up estimates of ca 30 the drop would be even larger.

An old post from Bespoke shows how drastic the cuts to earnings have been. At the end of Ocotober 2008 they wrote: "So where are earnings likely to come in next year? One of the more bearish forecasts making the rounds is that earnings for the S&P 500 will come in at $60 per share next year." This has now been reduced drastically, S&P sees 2009 reported earnings to be roughly 42. S&P also reported its bottom up earnings estimates for 2008. Here they are by sectors:

S&P 500 29.64
S&P 500 Consumer Discretionary (8.63)
S&P 500 Consumer Staples 15.37
S&P 500 Energy 38.62
S&P 500 Financials (25.39)
S&P 500 Health Care 19.72
S&P 500 Industrials 19.05
S&P 500 IT 13.43
S&P 500 Materials 1.92
S&P 500 Telecom 7.60
S&P 500 Utilities 12.55

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