Credit Suisse says we may be through the first stage of the crisis–finance and bank problems–but we’re only at the beginning of the second stage, which will be earnings related:
Despite a structural improvement in earnings growth since 1990, we find that US earnings are still 5% above trend levels (16% ex financial). Problematically, going into the previous hard landing US earnings troughed 14% below trend – which would imply earnings could fall by some 20% from here. Earnings volatility is at an all-time high.
We maintain our year-end target of 1350 for the S&P 500. The first phase of the bear market was corporate credit related; now it is earnings related. We think that we are in a bottoming process, not yet a bull market, and doubt significant new lows will occur. But we stress, as before, that there are binary outcomes.
We wholeheartedly agree with the earnings concerns. Analysts are still forecasting a hockey-stick recovery for S&P 500 earnings. History suggests this just won’t happen.
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