Reuters writes, "Projections for S&P 500 companies' fourth-quarter earnings swung to a 6.1 percent drop on Monday from an 11.5 percent rise on October 1, in the biggest quarterly move since Reuters Estimates started compiling analysts' forecasts in 1999." Tech company earnings are still expected to rise 25%, but that is the extent of the good news.
The impact on the stock markets could be significant. Investors are used to earnings surprises that run on the sunny side.
The S&P 500 is up only 18% since the beginning of 1999. This is due, to some extent, to the huge drop the index suffered in 2002. It points to a stock market that has not performed as well as earnings have. It is, is essence, more fragile than the corporate results which have driven it.
The index sits just below 1,500 and has taken a big run-up since mid-2006. It is not hard to believe that a contraction of earnings growth would take it down 20%, which is about where it was 18 months ago. If the economy has entered a recession, investors should be happy if it does not go lower.
Douglas A. McIntyre is an editor at 247wallst.com.
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