Credit Suisse: Welcome to Second Stage of Bear Market

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.

See Also: Sorry, But The Stock Market is Still Screwed

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