Companies in key stock indices like the S&P 500 have started reporting their corporate earnings for the fourth quarter of 2012.
There is a heavy concentration of earnings in a small number of S&P 500 companies. Only 10 companies in the S&P 500 make up 88% of all corporate earnings for the index as per Morgan Stanley research; the other 490 companies only make up a menial 12% of the total corporate earnings of the S&P 500. (Source: Business Insider, November 26, 2012.)
According to Thompson Reuters, fourth-quarter corporate earnings for S&P 500 companies are only expected to grow 1.9% year-over-year. Only three months ago, this earnings estimate was as high as 9.9%; this past summer, fourth-quarter 2012 earnings were expected to be 13.7% higher than fourth-quarter 2011 earnings. (Source: Streetwise, January 12, 2013.)
Since it’s still early, not many companies in the S&P 500 index have reported their fourth-quarter 2012 earnings, but from those that have reported, it is not encouraging. For example, Bank of America Corporation (NYSE/BAC) saw its corporate earnings fall 63% in the fourth quarter of 2012.
Citigroup, Inc. (NYSE/C), another big bank on the S&P 500, missed its fourth-quarter corporate earnings forecast. The CEO of the bank, Michael Corbat, explained the poor corporate earnings by saying, “It will take some time to work through the challenges of the current environment.” (Source: CNN Money, January 17, 2013.)
But even with the poor numbers in from Bank America and Citigroup, optimism towards key stock indices is increasing at a surprising rate. (Remember, the more optimism increases amongst stock advisor and investors, the more bearish it is for the stock market.)
Corporate earnings growth for the fourth quarter of 2012, at this point, is questionable. With Thompson Reuters predicting growth of only 1.9% for fourth-quarter earnings, a few surprises could easily turn corporate earnings growth into contraction.
As I have been saying in these pages recently, the stock market is piling up a lot of risk and missing the most important ingredient to any sustainable stock market rally: corporate earnings. Investors should be very cautious at these recent key stock market index highs. We could be in the midst of a market top and investors surely don’t want to be caught in it.
What He Said:
“The proof the party is over in the U.S. housing market could not be clearer to me. The price action of the new-home builder stocks is telling the true story—these stocks are falling in price daily (and the media is not picking it up.) Those that will hurt most when the air is finally let out of the housing market balloon will be those buyers who bought in late 2005. In fact, the latecomers to the U.S. housing market may end up looking like the latecomers to the tech-stock rally that ended so abruptly in 1999.” Michael Lombardi in Profit Confidential, March 1, 2006. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.
Fourth-Quarter U.S. Corporate Earnings Outlook was last modified: January 21st, 2013 by Michael Lombardi, MBA
Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful investing publications,... Read Full Bio »
Forecasts Aug. 28, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 28, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)