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Monday, November 5, 2012

Earnings rebound in question

I have mentioned multiple times about the big rebound in 4th quarter earnings expected on the street.  I think this chart suggests that won't happen.


I showed this chart last quarter when the Q3 data had reached highs not seen since 2001.  We are only one month into the quarter and already companies are warning at rates never seen before in over 15 years of data.  I am going to go out on a limb and say that estimates for the 4th quarter will be lowered.  It appears the global slowdown may be intensifying and catching CEOs off guard with their earnings picture.  Is this what is causing people to sell into every gap up?

Here is an interesting look at earnings.


This is year over year earnings gains weighted by outstanding shares.  The earnings crossed negative right near the beginning of the last two recessions.  We have gotten very close, but so far have not crossed the zero line.  I think the huge profits generated by AAPL may be what is holding it up.  Too much reliance on one company for earnings is obviously not a good thing.  The big drop in earnings in 2008 was really caused by the huge losses in financials.  Since those earnings are still good, the weakness this time is from the rest of the sectors.  That is a reflection of the global economic weakness.  I think this is a key point.  The global economy was strong in early 2008 and was dragged down by the U.S. problems. The massive stimulus effort worldwide was able to restart economic growth easier because the global economy had been growing solidly before the crisis. The global economy is already on the verge of a recession.  Any shock now will put it clearly over the edge.  It may not be as easy to restart it this time. 


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