Stock market strategists are quick to remind everyone that the S&P 500 and the U.S. economy are not the same thing. Deutsche Bank’s David Bianco regularly offers a list of eight differences, which he presents in his bullish arguments for stocks.
But this doesn’t mean that they should move completely independent of each other.
“The Fed has managed to negotiate a divorce between the economy and the stock market,” writes David Rosenberg frustratingly.
You see, lately the slowing global economy is increasingly catching up with those S&P 500 companies who have been forced to issue disapointing earnings guidance. Meanwhile, stocks have been rallying.
“It is interesting to note that while the EPS estimate for the index for Q3 2012 declined 4.5% during the quarter, the price of the index actually increased 6.2% (to 1447.15 from 1362.16) during this same time,” writes FactSet’s John Butters. “While it is not unusual to see EPS estimate revisions for a quarter and the price of the market move in opposite directions (it has happened in 20 of the past 40 quarters), it is unusual to see this magnitude of change in both the EPS estimate revisions and price.”
Here’s more from Butters:
For Q3 2012, 82 companies have issued negative EPS guidance and 21 companies have issued positive EPS guidance. If the final percentage of companies issuing negative guidance is 80% (82 out of 103), it will be the highest percentage recorded for a quarter since FactSet began tracking guidance in Q1 2006.
Here’s a chart from FactSet illustrating that phenomenon.