A survey of analysts taken recently indicates that they believe earnings will be flat in the first and second quarters of this year when compared to the same periods in 2007. The poll, by Reuters Estimates, sees Q1 earnings for the S&P 500 moving up only .4% and Q2 by .9%. Both numbers are worse than those gathered the previous week.
Oddly enough, the same survey showed Q4 2007 earnings for the S&P 500 dropped over 20%.
The information is an example of how securities analysts will hold their estimates high as long as possible. perhaps to keep managements happy or keep shareholders invested in equities. It is hard to stay employed as a stock-picker when everyone is in bonds or cash.
In reality, earnings are likely to fall in each of the next two quarters. Certainly the financial companies in the S&P could see more huge write-offs due to subprime and consumer credit problems combined with falling value of LBO loans. With oil prices high it is hard to imagine that the auto and airline industries will do well. Retailers are already posting drops in same-store sales. The housing and construction industries will have another bad run.
Even technology may do badly. Recent information from Taiwan Semiconductor (TSM) and Intel (INTC) show slowing in the shipments of chips used for PCs and servers.
Oil companies and consumer goods operations which sell soap, toothpaste, and razors may fair well, but they cannot offset the drops in other industries.
A doubled-digit drop in the earnings of the firms in the S&P is more likely than flat year-over-year performance.
Douglas A. McIntyre
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