If the stock market has any predictive power whatsoever, why did it not bottom in early to mid-2008 a full half a year before the first negative earnings every reported for the S&P500 as a whole? Interestly it bottomed in the first week of March 2009 just as earings season made it apparent that in fact Q4 2008 earnings were NEGATIVE. The stock market is reactive NOT predictive.

In December 2008, I heard no one predict that the S&P500 would have negative earnings for Q4 2008. The quarter was over. The insiders knew what the earnings were. The analysts had no clue.

Going back to 2001-2003, the stock market bottomed in Q3 2002. That was 5 quarters after the operating earnings trough in Q2 2001 (pre-9/11). Back then the market was more overvalued, but the decline in stock prices steadily improved each quarter from Q2 2001 to onward. The problem was the quarter on quarter increase in earnings was painfully slow. This time around the analysts are predicting earnings will rebound at the fastest rate in history (probably due to rising unemployment i.e. cost cutting).

I went back and looked at 2007. On October 11, 2007, in more normal times, bottom up analysts were expecting earnings for Q3 2007 of 22.86 and top down analysts predicted $21.70. Actual earnings came in at $20.87. Both sets of analysts were too optimistic overall. The quarter was already over. The underlying economic conditions were known. Yet bottom up analysts missed by 10%, much better than Q1 2009 when they were off by 25%, but still no cigar.