Profits Have Stalled. Has the Market?

New York Times ^ | April 14, 2012 | By PAUL J. LIM

[Son House]

The problem is that earnings growth has ground almost to a halt — profits for companies in the S.& P. 500 are expected to grow just 1 percent in the first quarter and 2 percent in the second. That means that the only real hope for additional stock market gains this year is expansion in the P/E ratio, which may be bumping up against a ceiling.

“We already got a year’s worth of returns in just three months,” says Mark D. Luschini, chief investment strategist at Janney Montgomery Scott, referring to the first-quarter gain of 13 percent in the S.& P. 500. “That would suggest we borrowed a bit from the future.” And that, in turn, would imply that price-to-earnings ratios are more likely to fall than rise.

They’ve already started to do just that. Since the market began to pull back early this month, the index’s P/E, based on projected earnings, has fallen to around 12.5, from 13.1.

Lingering fears in the global economy may also weigh down P/E’s, says Jason Hsu, chief investment officer for the investment consulting firm Research Affiliates. Last week, for instance, a sudden jump in Spain’s bond yields renewed concern that the worst of Europe’s debt crisis may not be over.

Yet there may be another reason that P/E ratios won’t grow, Mr. Hsu says. The price that investors are willing to pay for earnings tends to jump most in the very early stages of an economic recovery, when optimism is teeming and growth is robust, he explains — but the current bull market is already three years old.

[Son House]

Well no, the market is the only place to beat inflation, and it helps if your stock pays dividends. But they could go out of business because Democrats have refused to do anything to improve the private sector, as their stated intent hasn't matched the results we see. There has been lots of time, and any ideas to improve the private sector are not new, they just haven't been implemented.

[mo]

I thought ‘Bammy was elected to put the markets out of business...that changey thing....

[jiggyboy]

Who will want to have their money in the stock market toward the end of the year, when all kinds of taxes go up, and the threat of another Obama term (i.e. the end of the United States) looms large.

[MichaelCorleone]

Not to worry folks. Earnings guidance will be consistently lowballed, paving the way for many upside ‘surprises’.

If/when that doesn’t work anymore, Uncle Ben will initiate QE 3,4 and beyond until...I think you know.

[sten]

Well no, the market is the only place to beat inflation, and it helps if your stock pays dividends.

you can also beat inflation by getting physical...

park your buying power... in gold

[Son House]

Yes, and it’s the young folks who normally should be encourage to invest at the lowest levels to maximize the compounding interest while they are young, and what do we tell them?

Ah, the “new” gamble of the stock market is the inflation in the price of the stocks you hold, out paces the stocks you hold of companies Democrats will put out of business.

[freedommom]

just curious

2009-silver 12$ oz 2012- silver 31$ an oz

2009- I spent about 50$ a week on groceries 2012-130

so lets say 150% increase (imho it’s more)

stock market 9000 in 2009 9000+ 150% =22,500.... so maybe gold is better

[freedommom]

just curious

2009-silver 12$ oz 2012- silver 31$ an oz

2009- I spent about 50$ a week on groceries 2012-130

so lets say 150% increase (imho it’s more)

stock market 9000 in 2009 9000+ 150% =22,500.... so maybe gold is better

[Son House]

Yes, and isn’t there something about the commodity market where they wish to regulate speculators more? Probably applies more to the oil futures trading now, but will it eventually effect other commodities as in gold? (with the acknowledgement you are talking owning physical gold, but many may only own paper futures)