The consensus top-down forecast for 2010 earnings is $72.52 a share, based on a tally of the views of 18 strategists and economists conducted by The Wall Street Journal. That 21% gain is more conservative than the bottom-up forecast, but not by much....
The gap between the camps was much wider, roughly $40 per share, a year ago at the height of the financial crisis. That suggests more clarity and comfort about the 2010 outlook.
There are reasons for optimism. Margins will thicken if companies stay slow to hire, as most economists expect. One-time federal tax breaks for corporations, worth $30 billion by some estimates, also will help. And S&P 500 companies derive nearly half of their earnings overseas, where growth is expected to be stronger.
Compare today's story to what we heard from the WSJ, who disbelieved this rally the entire way up. And if they were so wrong on the stock market, what makes anyone think that they have earnings estimates that are close to reality?
Isn't the stock market game beat and raise? So what happens then to estimates?
And why is it, that we can easily spot a phony forecast, even if it's fake, but no-one seems to out on Wall Street?
In March, the WSJ said we were heading for 5,000.
Dow 5000? There's a Case for It
Despite Friday's small gain, the Dow Jones Industrial Average marked its fourth consecutive week of losses as it tumbled through the 7000-point mark and spiraled to new 12-year lows. The Standard & Poor's 500-stock index is trading below 700 for the first time since 1996. As earnings estimates are ratcheted down and hopes for a quick economic fix fade, the once-inconceivable notion of returning to Dow 5000 or S&P 500 at 500 looks a little less far-fetched.
On April 6 they called the rally just another bear-market rally. What did you think they would call it? They were, after all, touting Dow 5,000!
It's Starting To Look a Lot like November.
The recent stock-market rally is turning heads. Why, there hasn't been anything like it since at least...November.
..Until this past Thursday, November's rally was bigger, with the S&P 500 up 21% in 17 days, compared with 20% for the current bounce. The earlier surge carried through to early January, but then fell off a cliff to hit 12-year low..
But this rally's scaffolding includes wishful thinking, too. It was launched by word that some big banks were profitable in January and February. Two months do not a quarter make, and banks indicated conditions got tougher in March.
While this bounce might not mirror November's, it still has the hallmarks of a bear-market rally.
After being wrong in March, and then in April, the WSJ tried again in May, telling us that stocks are no longer cheap.
By Most Measures, Stocks are No Longer Cheap
The outlook for stocks has brightened but, thanks to the big rally of the past two months, the market is no longer a bargain.
By many measures, stocks are still on the cheaper side of the ledger. But they are approaching levels that bring them closer to long-term averages, making them neither a deal nor expensive.As a result, valuation has shifted from being a talking point of the bulls to one used by those bearish on the near-term outlook. And even many of those who think the market has hit bottom -- a rapidly growing group -- say valuations now suggest investors should tread more carefully.
In a fairy tale, you can only cry wolf three times, but this is Wall Street, so we need to treat them biblically. We have to forgive them 70x7 times. So the WSJ warns us again:
A Bear Market Lurks as Dow Nears 10000
Rarely has the stock market seen a six-month rally like the one it just turned in. The Dow Jones Industrial Average's 46% surge was one of just six of that magnitude in the last 100 years. And that is exactly what worries many analysts.
All previous rallies of this magnitude took place in the 1930s and the 1970s, according to Ned Davis Research. Those were periods of turbulence for both the economy and the markets, and none of the gains was sustained.
Many analysts believe that stocks are again in such a turbulent period, and that this rally could lead to another slump. Stocks did enjoy a rally of 40% in 1982, at the start of a long-running period of stock-market prosperity. That rally wasn't of the same magnitude of the others, however. It came as economic troubles, notably inflation, were finally being squeezed out of the economy. "We could end up having another big decline next year," said Tim Hayes, Ned Davis's chief investment strategist, who correctly forecast a rally early this year. "Right now, people are asking me, 'Is it too late to get in?' We are saying, sure, you can get in, but don't fall asleep at the wheel, you have to get out, too. If you are looking to put money in and then not look at it for a year, you are taking a big chance.
With forecasts like these, someone should get slapped!