Friday, October 19, 2007
earnings growth going negative
Third-quarter earnings of S&P 500 companies have "a good chance" of turning negative for the first time in five years on Thursday, after factoring in Wednesday's profit warnings from a slew of energy stocks, Thomson Financial said.
"There's a good chance that we'll go negative tomorrow," said John Butters, analyst at Thomson Financial, which tracks earnings estimates at S&P 500 companies.
The third-quarter earnings growth rate is currently at 0.1%, and that's without factoring in the profit warnings from Chevron Corp., Valero Energy and others, he said.
However, Butters said that upwards revisions from other companies on Wednesday could keep the growth rate positive. Should year-on-year comparisons turn negative, it would be the first quarter of negative growth since the first quarter of 2002, Butters said.
the slowdown in earnings was first noticable in q42006 and has kept right on chugging into recessionary territory. the markets -- apropo of contrary sentiment indicators here and here and some technical considerations besides -- sold off hard in what some intrepid few in the press for the first time openly labeled "recessionary fears".
needless to say, i agree -- recession is upon us, nonfarm payroll revisions notwithstanding, and its roots seemed to be taking hold much earlier this year (see here and here). as if to confirm, the kbw bank index broke through 101.50 today and closed on the low. the dollar index too fell to a new all-time low -- mish shedlock wrote an incisive bit on what that may say. the cost of default insurance is, appropriately for a recession, ballooning.
UPDATE: julian robertson -- now clearly a lion in winter -- is on board with a "doozy" of a recession, centered on credit problems that he believes are almost universally underestimated.