Bulls Ignoring Crazy Earnings Projections: S&P 500 Analysts Still Dreaming of V-Shaped Recovery

Think the US stock market is ready to charge higher? Then explain this one to us. How, exactly, are S&P 500 earnings going to grow the currently-expected 11% in 2008?

As Asha Bangalore of Northern Trust observes, S&P 500 earnings grew a paltry 1.7% year-over-year in Q1. That wimpy growth follows the weak growth in 2007, in which earnings grew all of 2.7% (For comparison, in the bull market years of 2002-2006, earnings grew between 11.5% and 15.5% for five straight years):

More importantly, Asha notes, Q1’s weak earnings growth came entirely from international operations and the weak US dollar (translation: favourable foreign exchange rates):

On a year-to-year basis, corporate profits from the rest of the world grew 34.9%, the sixth consecutive increase in double digits. At the same time, corporate profits from domestic industries fell 6.2%, marking the fourth decline in the past five quarters. Moreover, within the domestic sector, corporate profits of the financial sector declined 12.2% from a year ago and corporate profits from the non-financial sector fell 2.6%.

So, please explain how the S&P 500 will manage to hit the current expectations of 10.5% growth for all of 2008. A V-shaped recovery? Haven’t we wisely given up hope on that already?

See Also:
V-Shaped Recovery? You’ve Got To Be Kidding Me
Sorry, Stock Market Still Screwed

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