Tags: S&P 500 | Earnings | Stocks | Investors

S&P 500 Earnings to Post First Decline Since 2008

S&P 500 Earnings to Post First Decline Since 2008
(Dollar Photo Club)

By    |   Wednesday, 16 September 2015 08:14 AM

Stock prices have been in a long-term uptrend with prices generally rising for the past 130 years.

This trend is easy to explain – stock prices have gone up because earnings have gone up.

No matter what we think moves markets in the short term, in the long run earnings are the most important factor. If earnings decline, we would expect stock prices to move down.

Recently, analysts at Standard & Poor’s warned investors that earnings are likely to fall this year. Few seemed to have noticed because most investors are focused on the Federal Reserve.

Fed officials cannot create earnings. They are often in a position of reacting to earnings which are truly just an economic data series. When earnings are declining, we are generally experiencing a weak economy.

For now, S&P analysts expect earnings per share for the companies in the S&P 500 index for 2015 to come in 1.5 percent lower than they were in 2014. S&P analysts have been sharply lowering their forecasts this year and the actual year-end results will probably be lower than they expect.

Analysts have lowered their estimates by 15 percent since the beginning of the year and 3 percent in the past three months. If current downtrends continue, we could see earnings fall by 10 percent or more by the end of 2015.

Given the fact that earnings are contracting, stocks don’t seem to deserve the above average price-to-earnings (P/E) ratio they currently have. To get down to an average P/E ratio, stock prices need to fall more than 10 percent. If earnings continue to decline, that drop could become much steeper.

Fundamentals now confirm the numerous technical signals calling for a bear market yet many investors are worrying about whether or not interest rates will rise 0.25 percent. Instead of the Fed, smart investors are watching earnings trends and selling.

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MichaelCarr
Stock prices have been in a long-term uptrend with prices generally rising for the past 130 years.
S&P 500, Earnings, Stocks, Investors
310
2015-14-16
Wednesday, 16 September 2015 08:14 AM
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