Q2-11 Earnings Revised Lower - Still No $100.00 For 2012

First Look at Q2-11 Earnings. 

With just over half the S&P 500 companies reporting, the results thus far point to lower earnings and lower future expectations compared to previous quarters. At the beginning of the year, pundits gave the $100.00 earnings projection for 2011-2012, but now, those have all but disappeared as the realisation that easy money does not come along so easily.

Sitting at 53% of companies reporting thus far – the following table illustrates Fair Market Value for the S&P 500 using timeframes of 5, 10, 15, 20, and 30 year average earnings (full report available from (http://www.scribd.com/doc/61491471/CFMV-Q2-11-Est ).

Chart 1

As a reminder, this quarterly earnings study uses both nominal and CPI adjusted data (popularised by Professor Robert Shiller). A primer on the study is available here.  As one can determine from the table, regardless of time horizon for investors, the S&P 500 remains overvalued. When viewing the chart below – readers can clearly see that the S&P 500 will ALWAYS return to a fair value (and can remain undervalued for a period of time):

Chart 2

A simple benefit to this study is the real-time tracking of both earnings and performance.  Clearly, the data from Professor Shiller’s website remains out of date as shown by the data below:

Chart 2

The following chart showing both Non-financial and Financial Corporate profits after tax provides some insight toward the current apparent roll-over of the economy:

Chart 4

Clearly, profits dropped considerably, made a slight rebound, and are now beginning to roll over once again regardless of the stimulus from governments around the world. The only thing we have to show for it is simply a bigger tax bill due later. Which, according to common sense models, takes a bite out of future growth… And with QE3 on the horizon, the spiral continues…

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