Monday, October 4, 2010

S&P Earnings Forecasts Revised Down

Analysts cut 2011 S&P earnings forecasts for the first time since June 09. New estimates for $95.17 vs. August high of $96.16. (Bloomberg). While this doesn't surprise anyone, and doesn't represent a material drop, it shows that those arguing that the market is undervalued based on forward earnings expectations need to remember that as margins may (or may not) have peaked, we will need to see an increase in aggregate demand (not likely while household sector continues to delever and/or remain jobless) to continue to drive higher earnings. Should final demand fail to improve, we will most certainly see deeper revisions to these forward earnings numbers that have always struck us as being a bit optimistic.

Bloomberg quotes Robert Doll, vice chairman of New York-based BlackRock Inc. "You need pretty fancy GDP numbers to get to $95/share in earnings next year. Our view is that they're still a little too high, and that nobody believes them." Well said.

Equity strategists are at $87.34 in 2011, less sanguine than company analysts.

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