The most important driver of stock prices is finally rolling over [NO MORE EARNINGS GROWTH]

Business Insider ^ | Sep. 22, 2015 | Sam Ro

[expat_panama]

The most important driver of stock prices is earnings.

"Earnings hold the key," Barclays' Ian Scott writes.

"The key to the outlook for global equities is earnings, with global valuations in line with historical averages, a supportive monetary policy backdrop, and very bearish sentiment, a major hit to [earnings per share] is the main risk for the market," Scott argued in a new note to clients.

In the US, corporate earnings growth has been slowing for months.

"It's amazing how forgiving the general commentary has been on profits and even the broad economy," Deutsche Bank's David Bianco said in an email to Business Insider.

"Many seem to celebrate the absence of a recession. The labor market continues to tighten ... but other than some bright spots like auto and housing, growth is extremely weak with underlying drivers like productivity and investment disturbingly poor and S&P profits are not growing."

Not only are earnings in the US not growing, but by many estimates, earnings are actually contracting.

[snip]

This is particularly concerning as the Federal Reserve appears to be on the brink of hiking interest rates, which could put further pressure on profits.

"Higher rates are always an incremental negative for the stock market," veteran market strategist Richard Bernstein wrote. "The probability of a bear market increases when the Fed increases rates faster than the improvement in earnings growth."

Bernstein added:

The Fed now risks being wrong footed, and the problem for the stock market today is the Fed is "threatening" to raise interest rates at a time when S&P 500 earnings growth is actually negative ... We've been concerned for many months that the recipe for the much- anticipated correction could be the Fed hiking rates when earnings growth was negative.

[expat_panama]

At first glance this may just look like shallow sensationalist hype, especially w/ the way he gets into weird arcane earning measurements, but checking the total corp. earnings stats it's true.  Decades of corp. earnings growth simply stopped a few years ago.  Say what you will about evil CEO's and their hedge funds, but we're talking about what supports the vast majority of all U.S. jobs and wages.

[Alberta's Child]

Why do I get the feeling that we’ll still be sitting here five years from now speculating about when the Fed will be raising interest rates?

[expat_panama]

 

Beginning the new day we start w/ the fact that for weeks now both metals and stocks have plopped themselves on a bench that's about 6 or 7 percent lower than where we started at the beginning of the year.  This morning's futures traders had been seeing more of the same but after rechecking as just over 2 hrs before the bell it's metals up +0.22% and stock indexes down -0.74%.  Not sure yet what gives. 

Big data flood today:

8:30 AM Continuing Claims
8:30 AM Durable Orders
8:30 AM Durable Goods -ex transportation
10:00 AM New Home Sales
10:30 AM Natural Gas Inventories
 

[expat_panama]

lol!!! [after actually laughing out loud]

My take is that waiting for the fed to raise rates is like waiting for the doctor to let you out of ICU. The point is to stop what's making you sick first, and the real problem for the econ is over there w/ the tax'n'spenders.

[redgolum]

The economy can’t grow all the time.

[The_Media_never_lie]

The economy can’t grow all the time.

True.

[CincyRichieRich]

At some point we will have the several days in a row couple thousand point drop. Somewhere the manipulation of gold and silver has to unwind and these with commodities which have been killed through this have to begin their climb.

This is logic.

However we are in 1984 where up is the new down and lawlessness is the new law...

[citizen]

Is the doc going to prescribe the latest wonder drug QE4?
Why not, it’s free.

[citizen]

Somebody on TV yesterday said Orwell was only off by about 35-40 years.
1984 + 35 = 2019

[ImaGraftedBranch]

It is not sensationalist. It is the way businesses operate now when backed by “other people’s money”.

Example: Splunk is a 7.5b market-cap company, started with VC money and zero profit to speak of. They have had increasing negative earnings but huge revenue growth. Execs and sales are compensated on revenue only, not earnings, so there is no inducement to get healthy. Out of 38 analysts, 30 rate it a BUY, 6 rate it a hold, and only 2 (intelligent) analysts see the truth and long term issues and rate it a sell. It will take 40 years of 20% compounded growth to get earnings ratio where they reach market cap today.
Is that sound? Of course not.

Doesn’t seem to matter today, but the piper always gets paid. The short-term thinking is why we are where we are today, and why it will all come tumbling down.

TNSSAAFL.

[tbpiper]

That QE stuff is like heroin. The more you use the more you need just to feel normal. Eventually, the amount you need to feel normal is enough to kill you.

[i_robot73]

Tax-n-spend is just a SYMPTOM of an out of control, illegaly, unconstitutional govt.

The latter is your root, NOT the former.

[citizen]

One can also say say that at the root of our ‘out of control, illegally, unconstitutional govt.’ is several generations of apathetic, unmotivated, ill-educated voters. Not bad people by and large but the mix has certainly been developing a “what can government do for me?” attitude.

Further, the precepts of these uninformed citizens are warped by a press that has abandoned watchdog duty in favor of secular social cheerleading.

[expat_panama]

Tax-n-spend is just a SYMPTOM of an out of control, illegaly, unconstitutional govt.

That's what we keep hearing, that all our tax'n'spending is completely necessary and we need it to fix the damage done by all the special interests.    I don't buy it because the bulk of the hard evidence points to the need to rid ourselves of tax'n'spending first.  Given the fact that the extreme left done too good a job of convincing Americans otherwise, we end up where there's abolutely nothing that the true believers will ever accept as proof.

[expat_panama]

The economy can’t grow all the time.

It's supposed to at least recover and then grow more because in the meantime the population and threats to America continue to grow w/o a let up.   This is why we've been seeing a weakening failing nation for several years now.

[zzwhale]

the Fed can cause a collapse in the stock market with rate increases. Interst rates up / market down... see saw

Now here is the real DANGER.... corporations stocks in sectors sell at MULTIPLES of “earnings”.. 15-17 times let’s say..
And corporations use stocks and thier growth to fund retirement programs.. magic money..

Now with earning down the market woudl naturally compensate and prices lower.. Now add to that the additional funding required by federal law to keep retirement funds at a specified level. So now what happens.... corporations ahve to dip into the cash flow (the real value of a company) to add to the reitement fund..

And guess waht it lowers the net earnings and thus drives the stock price lower and then what... corps have to take more out of cash flow..

this will lead to a 20%+ drop in stock prices.... not necessarily value but market demand... I din’t even address the margin rate, another negative impetus... and remember wall street is a HERD MENTALITY...so once the selling starts..it goes off a cliff so fast you cant get out....

[redgolum]

The current climate is anti growth. Both in regulations and in Wall Street.

If you are a small company that starts to really grow, expect massive amounts of government auditors to descend to “protect” the public and your larger competitor. If you are large company, growing makes you a target for to many, either in a buy out, or by the anti capitalists who seem to be paid by your competitors.

The strategy for years has been to protect market share, and (if you are high enough) cash out. No one really cares about what the business does.

I have seen this first hand to many times.

[expat_panama]

The most important driver of stock prices is finally rolling over [NO MORE EARNINGS GROWTH]

It is the way businesses operate now when backed by “other people’s money”.

Not really, it's what happens to Americans when the businesses they run are forced to support leftwing insiders --witness how say, the auto industry sees a shakedown where all the productive corps are under attack and being forced to prop up the union controlled GM.

[expat_panama]

manipulation of gold and silver

If you're saying that the markets are all under the control of the big guys then we need to agree that "big guys" are the folks doing the buying and selling.  Supply and demand is the law.  Leftists can pretend otherwise --sometimes for several decades--but supply and demand is just how the human race functions.  

[expat_panama]

....If you are large company, growing makes you a target for to many, either in a buy out...

Folks who get their businesses making tons of money tend not to up and close/sell out.  That's what failing firms do.