Sunday, 17 February 2008

S&P500 Earnings Expectations Still Too High

As of February 13th, S&P 500 operating earnings for 4Q07 are now expected to show a -23.6% decline . FY07 operating earnings are now showing a -4.1% decline. Forecasts for 1Q08 and 2Q08 remain largely unchanged from 3 weeks ago at 1.9% and 2.0% growth respectively.

3Q08, 4Q08 and FY08 have all been revised upward. 4Q08 operating earnings are now forecast to rise almost 60%. As noted two weeks ago and as seen in the chart below quarter over quarter growth of more than 35% is unheard of in the last 20 years.

As said here repeatedly, S&P operating earnings estimates are way too high. This week, retailers including Wal-mart will report. As has been the case in recent weeks, forecasts will be more important than the actual results and I wouldn't expect too many rosy forecasts. It will be interesting to see what effect retailer's outlooks will have on analysts estimates going forward.