CHART OF THE DAY: THE HUGE EARNINGS REBOUND
By Chart of the Day:
With fourth-quarter earnings largely in the books (over 79% of S&P 500 companies have reported for Q4 2009), today’s chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today’s chart illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low — the largest decline on record (the data goes back to 1936). Since its Q1 2009 low, S&P 500 earnings have surged (up over 600%) and currently come in at a level that has only been exceeded during the latter years of the dot-com and credit bubbles.
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Not a good sign. The data would tend to support opinions which say the market is approximately 40 percent overvalued.
I wondered how much more profit can corporation squeeze out of jobs attrition? Also now that the inventory replenishment cycle is completed and sales have been shown to be at much lower level than expected, can earnings continue to outperform? Indeed with the last bastions of permanent employment (health care, education, and .gov) showing stress, will there be enough demand from exports to help drive earnings? I think the veneer is quickly wearing away. Staying long but with a tight leash…
Zero Hedge has an interesting article on this and these “earnings” are not all they seem:
http://www.zerohedge.com/article/accounting-cash-gimmicks-have-boosted-collective-sp-500-cash-balance-over-150-billion-start-
How much of these earnings are from financial services and the accounting rule changes for tech companies? I know financial services comprised approx 40% of S&P profits in the mid 2000′s. Curious to see how much is real earnings growth and how much is money moving and accounting tricks?
Earnings = revenues minus cost of sales, operating expenses, and taxes, over a given period of time.
It would be nice to see this chart matched up with revenue growth. I work for a large healthcare company and I know we implemented new programs to increase Working Capital – speed up acct recv, slow down acct payables. Telling suppliers, here are your new terms.
ZeroHedge
“However, a dig through several hundred balance sheets and cash flow statements, indicates that of this $130 billion cash increase, about $90 billion was due to Net Working Capital Changes, and another $55 billion was due simply to underfunding capex by an amount required to preserve maintenance cash generation from existing asset bases.”
I bet “mark-to-fantasy” accounting has a lot to do with the rebound….