Down goes the Dow

According to FactSet Q1 2016 earnings is not looking good. That is with FactSet using the positively slanted non-GAAP numbers and forward operating estimates. Truth is hard to swallow.

http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_4.22.16

Igy

Tell us something we don't already know.

Jerry,

OK, the current PE for the S&P 500 is 23.34 which is one of the highest levels ever.

Chill, it's Saturday, beer, chips and mango salsa is in order.

Igy

Actually it's 24.17. Above average, but nowhere near the highest ever.

Jerry,

Whatever you say. I didn't realize two standard deviation above the norm was average.

Igy

Jerry,

Just going over S&P 500 data. The most recent completed Q4 2015 S&P 500 closed the year trading at a 23.62 PE. The index has not traded at that high of a multiple since 12/31/2009.

Believe what you want. Chill, enjoy a beer, chips and mango salsa. Life is good. One life to live. Live it.

Igy

Ghost of Igloi wrote:

Jerry,

Just going over S&P 500 data. The most recent completed Q4 2015 S&P 500 closed the year trading at a 23.62 PE. The index has not traded at that high of a multiple since 12/31/2009.

Igy

This is exactly why you don't use MARKET PE data in trading decisions. If you used Graham criteria since, not just 2000, but the whole 1987-1999 period (and that is the highest percentage price growth period in history), you would not have to worry about selling, because you would not be in the market to begin with. You would have not made any money. And that's why in my quant system, I don't even look at market PE or market GAAP earnings; I look at GAAP PE. PEG, eps momentum over 1-5 years, price momentum over 1-5 years. And while you keep talking about how expensive the MARKET is, I found stocks like American Eagle and Urban Outfitters selling at 13 and 15 PEs on 2/11/2016, and even after going up 20-30% since then, they are still selling at 15 and 17.

The Graham PE criteria fails backtesting since about 1980. You need to use variance or standard deviation if you're going to use that as selection criteria, because ALL market PE's have trended higher in the last 30+ years. The old methods don't work any more.

what he said

coach d,

OK, the old methods don't work because this time is different. Your buddies at Goldman have been struggling with their new methods lately.

Igy

“If you turn off CNBC and think about the market independently for even a few minutes, it is clear that this market displays none of the conditions which have historically been followed by sustained market advances, and all of the conditions which have historically been followed by market crashes. The aphorism ‘Buy low, sell high’ has long been discarded. The replacement ‘Buy high, sell higher’ has also been abandoned. The rallying cries of investors are now just ‘Buy’ and ‘Get me in!’

“Are we the only sane people on the planet? While investors are conditioned to think that ‘extreme risk’ means 15-20% downside, let’s not be shy… we expect a 50% plunge in the S&P 500 by the time this cycle is over. Fortunately, investors who decide to buy on a 15% drop will only lose about 41%, and investors who hold out for a 20% drop before buying will only lose about 38% by the bottom. That’s how the math works… So that’s the good news. The bad news is that the more speculative sectors of the market are likely to be hit harder… The difficult part of all of this is the short term. I have no answer for that, except that in each prior instance, every scrap of short-term gain was wiped out in the eventual downturn.”

John Hussman, February 2000

coach d,

I am looking at quarterly PE from the S&P website. The distortion is opposite of what you suggest, that is, the distortions were largely in the late 1990s. Of course there are periods where PEs have risen largely to mean reversion in stock prices rather than currently where you have a mean reversion in earnings. Let me remind you that period of the late 1990s was the most distorted in market history and the NASDAQ took an 84% hit, and is currently below it's peak of March 2000.

S&P 500 quarterly PEs have been under 20 from 2010 thru 9/30/2014 when LTM earnings peaked. Since then earnings have declined from that high of $105.96 to $86.53 the last completed quarter and the market has been in a range of 1,972 to 2,134. Wall Street analysts currently are forecasting 2016 GAAP at $109.30, however as is typical these numbers continue to fall. Last week analyst were predicting Q1 GAAP at $24.10 and that number has been discounted to $23.34. After AAPL, XON and CVX report next week expect further downgrade to earnings.

There is correlation of GAAP PE to the general market if you care to look. Nothing is different this time, including investors willingness to pay up for earnings at a market top.

Igy

Ghost of Igloi wrote:

Jerry,

Whatever you say. I didn't realize two standard deviation above the norm was average.

Igy

What?! Are you really that ignorant? Have you never studied basic statistics?

Well, I wasted a little time this afternoon, grabbing some date off the cloud and writing some R code, and what I came up with is this:

TIME PERIOD 1930-1955:

Mean P/E (traditional) 12.95

Variance 21.62

Std Deviation 4.65

TIME PERIOD 1980-2015:

Mean P/E (traditional) 21.01

Variance 206.80

Std Deviation 14.38

These are VERY different eras, and you CANNOT expect to use what is in the 1934 version of "Security Analysis" and get meaningful results. Saying that you are not going to buy unless the MARKET PE gets to 15 means you will not be an equity investor in this era.

A PE of 21 in this era is not "overvalued." That is the AVERAGE.

Ghost of IgIoi wrote:

Jerry,

Statistics are flexible. I use statistical algorithms that are superior and proprietary.

Enjoy the day with a cold one and some mango salsa.

Igy

You are truly an idiot off epic proportions.

Every day there is more confirmation that the casino is an exceedingly dangerous place and that exposure to the stock, bond and related markets is to be avoided at all hazards.

Companies representing more than a third of the S&P 500's market cap will report earnings in the coming week, with investors expected to focus on results for tech heavyweights Apple Inc. and Facebook Inc., as well as energy giants Exxon Mobil and Chevron. Eight of the 30 components making up the Dow Jones Industrial Average are scheduled to report, including Apple (AAPL) and Exxon Mobil (XOM). Additionally, a third of the companies on the S&P 500, representing $6.8 trillion in market cap, report results. The largest non-blue-chip S&P 500 component to report on the week is Facebook (FB).

Apple and Facebook earnings will likely fall under closer-than-usual scrutiny given that the tech sector has been getting clobbered this season with disappointing results from Microsoft Corp and Google parent Alphabet Inc, another revenue decline from IBM Corp, and announced layoffs at Intel Corp. For its part, Apple is expected to report its first year-over-year decline in unit sales of the iPhone, the consumer tech company's flagship product, and be the biggest drag on tech sector earnings this quarter. "If Apple reports actual EPS equal to or below the mean EPS estimate for the quarter, it will mark the first time Apple has been the largest detractor to earnings growth for the Information Technology sector since the calendar third quarter of 2013," said John Butters, senior earnings analyst at FactSet, in a report.

Energy companies are going into the season with drastically reduced expectations, with those for the three biggest names reporting this week having plummeted over the first quarter. Since the beginning of the first quarter, estimates for Exxon Mobil dropped to 31 cents a share from 75 cents a share, those for Chevron (CVX) swung to a 13-cents-a-share loss from a profit of 55 cents a share, and expectations for ConocoPhillips's (COP) estimated per-share loss plunged to $1.05 from 19 cents, according to FactSet data.

The energy sector, as a whole, is expected to turn in a year-over-year loss for the quarter, the first time any sector in the S&P 500 has reported an overall loss since the financials sector reported one in the fourth quarter of 2008, according to Butters. The one upside to that, given the sharp rebound from sub-$30 a barrel oil prices seen in February, is that earnings declines in the sector will decrease moving forward, he said.

Globally, stock indices are above the 200 day for the first time since July/August 2015. Headfake? Start of a new leg up?

US Earnings are going better than expected,which probably explains much of the short term strength...along with rallying oil prices.

Here's Factset's summary from 4/22:

Overall, 26% of the companies in the S&P 500 have reported earnings to date for the first quarter. Of these

companies, 76% have reported actual EPS above the mean EPS estimate, 14% have reported actual EPS equal to

the mean EPS estimate, and 10% have reported actual EPS below the mean EPS estimate. The percentage of

companies reporting EPS above the mean EPS estimate is above both the 1-year (69%) average and the 5-year

(67%) average.

agip,

To be clear, the FactSet numbers are all non-GAAP on an already lowered bar. Stock buybacks are continue to add a 4% tailwind to earnings. Wall Street continues to downgrade both GAAP and non-GAAP earnings as the year goes on.

Igy