April - Back to basics (artigo do Irwin Kellner)
Enviado: 1/4/2003 23:32Divert your glance
Iraq, the focus of March, may share investor attention with corporate results. It might not help stocks.
Back to basics
Commentary: The bottom line is an April Fool's joke
By Dr. Irwin Kellner, CBS MarketWatch.com
Last Update: 12:06 PM ET April 1, 2003
NEW YORK (CBS.MW) -- Last month the stock market fixated on Iraq around the clock, but now that April is here, don't rule out investors casting at least one eye in the direction of the bottom line.
What they will see, they may not necessarily like.
It may be true that corporate profits in the previous period advanced for the fourth straight quarter - something that hasn't been seen since the halcyon days of the late 1990s. However, it is also a fact that earnings remain far below their 1990s peaks.
Both pretax corporate profits as assembled and reported by the Commerce Department and operating earnings for the Standard & Poor's 500 are some 14 percent below their all-time highs reached during the bubble years.
The stock market may be down even more, but it is still very generously priced. The S&P 500 today is trading at 30 times its last 12 months' earnings - twice its long-term average.
Of course, if you believe the analysts, the market has already returned to its long-term average, since the P/E based on earnings forecasts for the year ahead is only 16. But before you believe them, you might want to recall that the S&P was trading at this 12-month forward ratio a year ago.
To make matters worse, earnings estimates for the quarter just ended have been coming down with the speed of a cruise missile.
At the beginning of this year, analysts expected first-quarter S&P operating earnings to rise nearly 12 percent from the year before. Now that's down to 8 percent - and that's before any reports have actually hit the street.
What's more, if you exclude the energy companies, many of which have benefited from the recent jump in oil prices, first-quarter earnings are now expected to increase by 2 percent at most.
Not surprisingly, many companies are trying to lower expectations for the first quarter's results. Indeed, the first quarter appears to have the worst ratio of negative warnings to positive surprises since the third quarter of 2001 - when profits were in a power dive.
About three times as many companies are warning that they will miss their forecasts as say they will beat them. A year ago this ratio was 1.7 to 1.
And even these earnings are not what you would call quality. They seem to be generated more by cost cutting and spending deferrals, rather than by growth in sales and revenues.
Profits from such draconian measures are temporary at best. More like an April fool's joke than the real thing.
Iraq, the focus of March, may share investor attention with corporate results. It might not help stocks.
Back to basics
Commentary: The bottom line is an April Fool's joke
By Dr. Irwin Kellner, CBS MarketWatch.com
Last Update: 12:06 PM ET April 1, 2003
NEW YORK (CBS.MW) -- Last month the stock market fixated on Iraq around the clock, but now that April is here, don't rule out investors casting at least one eye in the direction of the bottom line.
What they will see, they may not necessarily like.
It may be true that corporate profits in the previous period advanced for the fourth straight quarter - something that hasn't been seen since the halcyon days of the late 1990s. However, it is also a fact that earnings remain far below their 1990s peaks.
Both pretax corporate profits as assembled and reported by the Commerce Department and operating earnings for the Standard & Poor's 500 are some 14 percent below their all-time highs reached during the bubble years.
The stock market may be down even more, but it is still very generously priced. The S&P 500 today is trading at 30 times its last 12 months' earnings - twice its long-term average.
Of course, if you believe the analysts, the market has already returned to its long-term average, since the P/E based on earnings forecasts for the year ahead is only 16. But before you believe them, you might want to recall that the S&P was trading at this 12-month forward ratio a year ago.
To make matters worse, earnings estimates for the quarter just ended have been coming down with the speed of a cruise missile.
At the beginning of this year, analysts expected first-quarter S&P operating earnings to rise nearly 12 percent from the year before. Now that's down to 8 percent - and that's before any reports have actually hit the street.
What's more, if you exclude the energy companies, many of which have benefited from the recent jump in oil prices, first-quarter earnings are now expected to increase by 2 percent at most.
Not surprisingly, many companies are trying to lower expectations for the first quarter's results. Indeed, the first quarter appears to have the worst ratio of negative warnings to positive surprises since the third quarter of 2001 - when profits were in a power dive.
About three times as many companies are warning that they will miss their forecasts as say they will beat them. A year ago this ratio was 1.7 to 1.
And even these earnings are not what you would call quality. They seem to be generated more by cost cutting and spending deferrals, rather than by growth in sales and revenues.
Profits from such draconian measures are temporary at best. More like an April fool's joke than the real thing.