Saturday , 23 September 2017


Can S&P 500 Justify Current Level With Earnings Growth So Weak?

The S&P 500 is trading at near record high levels on the back of liquidity glut in theinvesting2 financial system. I mention the liquidity factor because all other fundamental factors do not support current levels and valuations.

So say edited excerpts from the original post* on www.economicsfanatic.com entitled The S&P 500 Earnings Growth Momentum Waning.

(NOTE: This post is presented by  Lorimer Wilson, editor of  www.FinancialArticleSummariesToday.com and www.munKNEE.com and the free Intelligence Report newsletter (see sample here – register here). The article may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read.
Submit your own articles & article suggestions here (earn a “Hat Tip” acknowledgement) for posting consideration. Follow the munKNEE” daily posts via Twitter or Facebook. These paragraphs must be included in any article re-posting to avoid copyright infringement.)

The article goes on as follows:

The charts below give the S&P 500 “operating earnings” and “as reported earnings” growth (calculated on a TTM basis).

Growth in Standard and Poor's 500 As Reported EPS
Growth in Standard and Poor's 500 Operating EPS
Very clearly, the earnings growth momentum is on a rather sharp decline. This is understandable considering the following facts:
  1. Euro zone is in a recession and the IMF project negative growth for the Euro zone in 2013
  2. China has witnessed a meaningful slowdown and growth momentum is unlikely to pick up soon
  3. India is also witnessing a slowdown and government policy paralysis will continue to hinder growth
  4. The U.S. might also be heading for a slowdown with negative growth in March 2013 retail numbers
The above factors combine to suggest weak global economic activity. Also, growth momentum will not pick up in the foreseeable future. Amidst these concerns, it is surprising to see the S&P 500 trading at near record highs. The most likely conclusion is the liquidity factor as there is no other positivity the equity markets might be discounting.

Considering these factors, I would suggest investors:

  • stay away from the markets for the remainder of 2013 in terms of considering fresh exposure and also
  • lighten their equity portfolio amidst the current slowdown.

Any meaningful correction over the next few quarters will give a good buying opportunity.

(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

*http://www.economicsfanatic.com/2013/04/the-s-500-earnings-growth-momentum.html

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