Fedex (Photo credit: erikleenaars) |
Caterpillar (CAT – News), FedEx (FDX – News), and McDonald’s (MCD – News) along with others have issued warnings about future growth. Yet over the past year, stocks have shrugged off growth concerns. Is this time different? Has the Great Recession finally caught up with the stock market? Can the market (once again) escape undamaged?
Records are Made to be Broken
2012 has been a year of record corporate earnings. (We’ll put that record into context in a moment)
Today, forward Q4 earnings estimates for the S&P 500 is now at a high of $ 112.26, surpassing the July 13th peak of $ 111.88, and a new record high for the S&P 500 earnings estimate. (Source:ThomsonReuters)
A few things the reader should keep in mind:
1) Regardless of how earnings turn out, the S&P’s (IVV – News) trend over the past 12 years is a compressing P/E ratio. In fact, the current forward 12-month P/E ratio of 13 is still below its 10-year average!
2) Despite 20-30% growth off the 2009 bottom, the S&P hasn’t traded much over 15x earnings since then. (Even during the 2003-07 rally, the S&P multiple remained at 15x earnings or about even with earnings growth.)
3) All major market tops coincided with record earnings. And the chart below plots the S&P against earnings since 1998. A picture is worth 1,000 words.
>> click here to view larger chart
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