Comments on: Is The Stock Market Cheap After A 50% Rise? http://www.tradersnarrative.com/is-the-stock-market-cheap-after-a-50-rise-3168.html Freshly squeezed market commentary & analysis Sun, 21 Mar 2010 00:46:17 +0000 http://wordpress.org/?v=2.0.2 by: wayne http://www.tradersnarrative.com/is-the-stock-market-cheap-after-a-50-rise-3168.html#comment-56676 Thu, 05 Nov 2009 03:30:04 +0000 http://www.tradersnarrative.com/is-the-stock-market-cheap-after-a-50-rise-3168.html#comment-56676 Earnings update, One month ago before third quarter earnings season started, Standard and Poors was estimating third quarter earnings would come in at $12.00. Two weeks ago with 37% of stocks reporting, 80% of companies were coming in with earnings above estimates and S&P had raised their 3rd quarter estimate to $13.14. Today with 76% of companies reporting, they (S&P) have third quarter earnings estimates at 14.62. So I assume the final number will be 15ish. We had the same scenario of upward revisions with 2nd quarter earnings. The PE calculations in the above post are intentionally on the very conservative side. If you use earnings of 15 for 3rd quarter and 15 again for 4th quarter, you would have a 12 month PE of 1050/51.02 which equates to a PE of 20.58, which is an earnings yield of 4.8% Leading Economic indicators (LEI) have been in strong uptrend for 8 months, yet analyst are slow to upgrade earnings estimates. As for the comment on the accuracy of companies earnings. I am not an accountant and don't read financial statements and am not qualified to say. I assume that companies are using the same means to misrepresent earnings that they have for the last 50 years. I can't really say. Earnings update,

One month ago before third quarter earnings season started, Standard and Poors was estimating third quarter earnings would come in at $12.00.

Two weeks ago with 37% of stocks reporting, 80% of companies were coming in with earnings above estimates and S&P had raised their 3rd quarter estimate to $13.14.

Today with 76% of companies reporting, they (S&P) have third quarter earnings estimates at 14.62. So I assume the final number will be 15ish.

We had the same scenario of upward revisions with 2nd quarter earnings.

The PE calculations in the above post are intentionally on the very conservative side.

If you use earnings of 15 for 3rd quarter and 15 again for 4th quarter, you would have a 12 month PE of 1050/51.02 which equates to a PE of 20.58, which is an earnings yield of 4.8%

Leading Economic indicators (LEI) have been in strong uptrend for 8 months, yet analyst are slow to upgrade earnings estimates.

As for the comment on the accuracy of companies earnings. I am not an accountant and don’t read financial statements and am not qualified to say. I assume that companies are using the same means to misrepresent earnings that they have for the last 50 years. I can’t really say.

]]> by: JL (aka Spudthorpe) http://www.tradersnarrative.com/is-the-stock-market-cheap-after-a-50-rise-3168.html#comment-56400 Sat, 31 Oct 2009 00:47:57 +0000 http://www.tradersnarrative.com/is-the-stock-market-cheap-after-a-50-rise-3168.html#comment-56400 Thanks for taking the time to post your analysis here. However, I disagree with your numbers on two fronts. First, a P/E of 24 is still quite high - a more reasonable SPX fair value based on earnings of $44 would be 15-20x or $660-880. I understand you are comparing current P/Es (inverted) to bond yields, but just as you are arguing that earnings are artificially low at the moment, so also are bond yields - if the economy improves enough to justify your earnings expectations, it is likely that bond yields will rise in the intermediate term as well. However, more importantly, I think your entire scenario misses the point that the $44 earnings are phony. If financial firms were accurately reporting credit losses, SPX earnings would be drastically lower if not negative for some time to come. Thanks for taking the time to post your analysis here. However, I disagree with your numbers on two fronts.

First, a P/E of 24 is still quite high - a more reasonable SPX fair value based on earnings of $44 would be 15-20x or $660-880. I understand you are comparing current P/Es (inverted) to bond yields, but just as you are arguing that earnings are artificially low at the moment, so also are bond yields - if the economy improves enough to justify your earnings expectations, it is likely that bond yields will rise in the intermediate term as well.

However, more importantly, I think your entire scenario misses the point that the $44 earnings are phony. If financial firms were accurately reporting credit losses, SPX earnings would be drastically lower if not negative for some time to come.

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