Ouch
Another 50% down? Now that would probably bring about the despair and disgust I mentioned yesterday.
Taking a quick look at the stock market, we see it is still going nowhere — Arthur Hill recently observed that the market has gone nowhere since October. Since we are in a 6-month period of positive seasonality, that is not very encouraging.
I had interpreted the price action following the January top as the start of the next down leg, but the movement of the last two weeks has kept the price index inside the months-old triangle formation, ending the decline for the time being.
Bottom Line: Market fundamentals are abysmal. The current estimated quarterly earnings for the S&P for 2008 Q4 is -$10.44. The S&P has never in history reported negative earnings for a quarter. Market action is neutral. This could be interpreted as “the market waiting for passage of the stimulus package”; however, there is no way to keep the stimulus package from passing, so it is likely to be a case of “sell on the news”.
In my opinion, the bear market is far from over. Whether or not there is a substantial rally, I believe there is another 50% decline coming. That would be a downside target of about 350 on the S&P.
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If we get earnings of between $33 and $34 (David Rosenberg of Merrill or whatever they call it these days says $28) with a PE of around twenty then the S&P will go to 666.
Comment by Fred — 2/14/2009 @ 4:19 pm
Another 50% down? Yeah, I think that would do it.
Comment by David — 2/14/2009 @ 5:12 pm
Just finished reading the article at Financial Sense.
According to Swenlin’s earning estimate tables, even a drop to 350 on the S&P 500 would still leave the index overvalued relative to 2009 earnings estimates! Now that’s something.
Comment by David — 2/14/2009 @ 5:37 pm
The 40-plus percent drop we’ve had has already changed more than a few retirement plans, I’m sure. If we dropped another 50% from here, I think we’d see some outright panic — the ‘blood in the streets’ scenario.
Comment by BMB — 2/14/2009 @ 5:51 pm
Its coming. And Joe-401K already suspects its coming. They are 1/2 way prepared for it (psychologically – not financially).
Don’t kid yourself. Its going to get ugly.
Comment by EDN — 2/14/2009 @ 8:04 pm
You know what they say: hope for the best, but prepare for the worst. That’s all we can do.
Comment by BMB — 2/15/2009 @ 7:01 am