I keep telling you about my suspicion that the backbone of any stock market—corporate earnings growth—is disappearing. Now, we see it in the numbers…
Of the 106 companies in the S&P 500 that have issued corporate earnings guidance for the fourth quarter, an astounding 94 of them have issued negative guidance—that’s 89% of the companies issuing guidance, warning it will be negative, which is well above the five-year average rate of 63%. (Source: FactSet, December 13, 2013.)
And analysts continue to drop their expectations for corporate earnings growth for the fourth quarter. As of September 30, analysts expected fourth-quarter corporate earnings growth in the current quarter would be 9.5%. By last week, that rate had come down to 6.5%. (Source: Ibid.) I expect corporate earnings growth for the fourth quarter will continue to disappear.
So we have 2013 ending with the smallest increase in corporate earnings since 2009. How can 2014 be any better?
The risks that disappearing corporate earnings growth creates for the key stock indices continue to be ignored. And problems in the global economy are mounting, not improving, with each passing day.
Economic growth in China, the second-biggest economic hub in the global economy, is declining rapidly. The country is expected to post a growth rate this year that is “embarrassingly” low compared to China’s historical economic growth rate. Manufacturing activity in the country is rapidly declining. The HSBS Flash China Manufacturing Purchasing Managers’ Index (PMI) dropped to a three-month low in December. (Source: Markit, December 16, 2013.)
We are seeing an economic slowdown in the stronger eurozone nations like France. In December, manufacturing activity in this second-biggest eurozone nation, and fifth-biggest economic hub in the global economy, plunged to a seven-month low. The Markit Flash Fra… Read More
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