S&P 500 Earnings Stuck at 2011 Levels, Stocks up 87% Since



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POSTED BY Ed (4 mths ago)
Grounded in some sort of new reality? LOL

The S&P 500 stock index edged up to an all-time high of 2,351 on Friday. Total market capitalization of the companies in the index exceeds $20 trillion. That’s 106% of US GDP, for just 500 companies! At the end of 2011, the S&P 500 index was at 1,257. Over the five-plus years since then, it has ballooned by 87%!

These are superlative numbers, and you’d expect superlative earnings performance from these companies. Turns out, reality is not that cooperative. Instead, net income of the S&P 500 companies is now back where it first had been at the end of 2011.

Hype, financial engineering, and central banks hell-bent on inflating asset prices make a powerful fuel for stock prices.

And there has been plenty of all of it, including financial engineering. Share buybacks, often funded with borrowed money, have soared in recent years. But even that is now on the decline.

Share buybacks by the S&P 500 companies plunged 28% year-over-year to $115.6 billion in the three-month period from August through October, according to the Buyback Quarterly that FactSet just released. It was the second three-month period in a row of sharp year-over-year declines. And it was the smallest buyback total since Q1 2013.

Apple with $7.2 billion in buybacks in the quarter, GE with $4.3 billion, and Microsoft with $3.6 billion topped the list again. Still, despite the plunge in buybacks, 119 companies spent more on buybacks than they’d earned in the quarter. On a trailing 12-month basis, 66% of net income was blown on buybacks.

Alas, net income has been a problem. By now, with 82% of the S&P 500 companies having reported their results for Q4 2016, earnings rose 4.6% year-over-year, according to FactSet. It’s the second quarter in a row of year-over-year earnings growth, after six quarters in a row of earnings declines.

For the entire year 2016, earnings edged up 0.4% from 2015. And revenue inched up 2.4% – in a year when inflation, as measured by the Consumer Price Index, rose 2.8%.

It wasn’t just 2016 that was crummy. Earnings in Q4 2016 were back where they’d been in Q4 2011. This chart by FactSet shows:

Net income as reported on a trailing 12-month basis (dark-blue bars, left scale in million dollars)

Share buybacks on a trailing 12-month basis (light blue bars, left scale)

Buybacks as a percent of net income (green line, right scale).

I added the red line to show how, after a bump in the middle, net income has gone nowhere in five years. And I circled the increases in trailing 12-months net income over the past two quarters to show how puny they’ve been (click to enlarge):

http://wolfstreet.com/wp-content/uploads/2017/02/US-SP500-net-income-buybacks.png


At the same time, over those five years since Q4 2011, the S&P 500 index has soared 87%. Grounded in some sort of new reality? LOL

And it’s even worse. FactSet uses “adjusted” ex-bad-items earnings that companies report under their own metrics. FactSet does not use earnings the companies report under the stricter guidelines of GAAP. These “adjusted” earnings are generally much higher than earnings under GAAP. In some cases, companies might show a big profit on an “adjusted” basis but have a loss under GAAP.

This disconnect between five-year earnings stagnation and soaring stock prices is confirmed by revenues. The S&P 500 price to sales ratio, which tracks stock valuations in relationship to aggregate revenues of the S&P 500 companies, has now reached 1.87, just 8% below its crazy peak back in early 2000 before it all came apart. That ratio was between 1.4 and 1.5 before the Financial Crisis and below 1.0 before 1996 (chart).

More http://wolfstreet.com/2017/02/19/2016-sp-500-earnings-back-at-2011-levels-as-stocks-ballooned-87-percent/

COMMENTS

Ed (4 mths ago)
Ten Charts Demonstrating The 2017 Stock Market Euphoria, And One That Doesn't

Summary

In the aftermath of the 2008 banking crisis, easy monetary policies have helped fuel stock market prices to ever new highs.

But, it appears these policies have helped fuel a historic stock market bubble as prices have greatly dislocated from a range of economic fundamentals, ten of which are shown here.

These charts suggest stock market valuations are euphoric and that the risk of a major correction is substantial.

One chart, however, indicates valuations are far from excessive - if you believe in continued low interest rates and steady earnings that is.

More http://seekingalpha.com/article/4045947-ten-charts-demonstrating-2017-stock-market-euphoria-one

hellohellohello (4 mths ago)
It's inevitable that one day, all the doomsday predictions come true and the rally ends with a big crash. Key question is how much of the ride up have you missed out on when that point finally happens by sitting on the side? People have talking about equity bubbles for five years now. Sounds an awful lot like hk housing

Ed (4 mths ago)
What does it matter if you sat on the side or not if it all is going to implode at some point - if you don't make use of the ephemeral prosperity?

So one's nett worth triples due to central bank policies -- and one sits mesmerized by the paper gains.... what is gained from that?

My motto is --- reap hay while the sun shines --- and piss it away nearly as quickly. For tomorrow it will vapourize.

'pecuniam, cum sol erit in desolationem subito interpositam'

hellohellohello (4 mths ago)
Because despite all the sophisticated analytics, very few have the ability to accurately time the market. Even when right. As the saying goes, the market can stay irrational longer than we can stay solvent.

Moreover, even if market corrects itself 30% at this point, you still come out ahead after the fact when you rode it up for 100% gains before that.

And lastly, much more meaningful than just sitting back and admiring your paper gains is the fact that your daily expenses are also inflated away. If assets aren't worth any more real value but simply have a higher sticker price, then i'd much rather be owning assets which - perhaps also nonsensically - have an inflated figure to draw down on to cover those expenses instead of just cash in the bank whose value is simply eroded away by the central banks. In fact if you're so convinced on the absolute recklessness of central bank policy, all the more reason to be owning "inflatable" assets to hedge inflationary costs.

hellohellohello (4 mths ago)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves"

Ed (4 mths ago)
If you invested 100k in an S&P index fund in 2008 --- you are currently sitting on an 87% gain which can be attributed to central banks flooding the global economy with money that has been used to buy back shares.

At some point that 87% gain is going to disappear .... (I would actually argue that it is likely that the entire investment is going to disappear at some point in the near future.... see below)

If you sit on that 87% gain admiring your Schwaab account what benefit do you get if it is going to blow up at some point?

I am not advocating doing nothing --- I am advocating spending at least some of the 'fake' gains.... take vacations.... buy a fast car.... whatever turns your crank....

Some might suggest buying gold....

Many ultra wealthy individuals including Peter Thiel and much of the silicon valley crowd --- and quite a few finance types --- are buying property in New Zealand...

https://www.bloomberg.com/news/articles/2016-11-02/the-rich-have-found-a-place-to-escape-the-horrors-of-the-world



HSBC: Brace for the oil, food and financial crash of 2018
https://medium.com/insurge-intelligence/brace-for-the-financial-crash-of-2018-b2f81f85686b#.z9uwvj2gd

How global economic growth will drown in Trump’s oil glut after 2018
https://medium.com/insurge-intelligence/how-global-economic-growth-will-drown-in-the-oil-glut-after-2018-5c96dec3f13b#.pjrdhcctf


https://cdn-images-1.medium.com/max/800/1*j4LNAHOW4O41gNW7CKEtGg.png

hellohellohello (4 mths ago)
Not sure where you're arbitrarily picking your points, but if you invested in 2008/9 you're potentially sitting on 250% gains. More importantly, even if you were late to the party and invested in 2011/12 - when the bears were already out in force telling everyone to beware the impending crash - you'd be sitting pretty with 100% gains still.

My point isn't that a correction won't come. My point is you don't know when that will be and that investors lose more money trying to time the correction than they do in an actual correction.

As for splashing out on a lux holiday or a car, you've missed the point that assets are an inflationary hedge. You have it in your head that price increases need to be a result of "real" growth. My position is that whether prices are inflated by growth or simply by easy monetary policy, I most certainly would want to be owning stock or property in either scenario so my cash value isn't eroded. I actually agree with you on central bank inflationary stoking.

as for Peter Thiel and other high net worth individuals buying up doomsday bunkers, who cares? (though NZ Tourism board appreciates the article). I could also point out that other "high net worth individuals and finance types" like Buffett and Jamie Dimon are also loading up on a lot more stocks. But that is also neither here nor there. Their lifestyle is irrelevant to us.

hellohellohello (4 mths ago)
Yes, one day the correction will come and you can finally say "I told you so" to everyone. Say it long enough and you'll eventually be right. But if it comes 5 years late as it is now or potentially not till another 5 years down the road, was it really worth sitting out the gains up till then is the real question.

Ed (4 mths ago)
So your 100k triples --- and then it drops back to 100k after the correction.

What's the point of all this - unless you took some of the cash off the table to enjoy it?



I do not expect a correction --- I expect a complete implosion.

The global economy must have cheap to produce oil to function --- we are out of cheap to produce oil --- we are running on empty:

http://hongkong.asiaxpat.com/forums/hong-kong-property-finance/threads/1c5f73d3-6fb6-4279-9e2b-a66d8b978af8/the-end-of-the-line-for-oil/

hellohellohello (4 mths ago)
You're just being circular and dogmatic. Might as well say "why invest at all if we're soon going to have Jesus' return / alien invasions / meteor strikes ending the world???"

All extreme scenarios which I may even be more persuaded by than your 80% fall in SP500 which you dismissively throw out as a foregone conclusion as a basis for the "discussion". Yes you're right ... if we all assume aliens are coming, we'd better sell now!

hellohellohello (4 mths ago)
You are certainly your own class of bear by not only 1) calling for Sp500 at 600 (!) but 2) expecting everyone else to simply accept that "fact" as a basis for their comments.

Ed (4 mths ago)
I am basing my argument on the fact that we are out of cheap to produce oil.... I have laid that out with extensive supporting data here:

http://hongkong.asiaxpat.com/forums/hong-kong-property-finance/threads/1c5f73d3-6fb6-4279-9e2b-a66d8b978af8/the-end-of-the-line-for-oil/


The end of oil will result in more than a 'correction' --- unfortunately....

If you don't agree feel free to explain how the analysis I have put forward on that thread is not correct.


The way I see it ... we are here:

http://www.acting-man.com/blog/media/2016/10/Wile.E-Coyote-In-Air.gif



As for Warren Buffett --- I would not expect that he would ever go public with his thoughts if he expected a very dire outcome.

That would not be very good for his business --- and just imagine what that would do to the fragile confidence in the US and global economy if one of the most prominent investors in the world were to publicly announce he was buying a bolt hole in New Zealand....


We do not know what Warren Buffett is doing -- perhaps nothing as he is quite a old man already....

Likewise we do not know what other mega wealthy people are doing as they - like Buffett --- would not advertise their plans.


What we do know is that this time is different --- we have never seen such desperation coming out of the central banks and governments. We have never seen interest rates at these low levels ---- we have never seen the entire stock market predicated on stock buybacks with low interest money from the central banks....


This will end badly.

hellohellohello (4 mths ago)
You should take a step back and see how tunnel-visioned you've become. Might as well throw in the alien invasion onto that warning sign

Even I grant you everything you want to claim about oil, banking, yada yada...where do you get off nonchalantly declaring as fact sp500 falling 70-80% to 600? Even the housing/banking crisis was "only" 50%

You're being way too loose making false equivalences

Ed (4 mths ago)
I actually don't take my instructions from aliens.... let's take a look at one source...


This report was recently distributed by HSBC to clients:



Brace for the oil, food and financial crash of 2018

80% of the world’s oil has peaked, and the resulting oil crunch will flatten the economy

New scientific research suggests that the world faces an imminent oil crunch, which will trigger another financial crisis.

A report by HSBC shows that contrary to the commonplace narrative in the industry, even amidst the glut of unconventional oil and gas, the vast bulk of the world’s oil production has already peaked and is now in decline; while European government scientists show that the value of energy produced by oil has declined by half within just the first 15 years of the 21st century.

Last September, a few outlets were reporting the counterintuitive findings of a new HSBC research report on global oil supply. Unfortunately, the true implications of the HSBC report were largely misunderstood.


The HSBC research note — prepared for clients of the global bank — found that contrary to concerns about too much oil supply and insufficient demand, the situation was opposite: global oil supply will in coming years be insufficient to sustain rising demand.
Yet the full, striking import of the report, concerning the world’s permanent entry into a new age of global oil decline, was never really explained.

The report didn’t just go against the grain that the most urgent concern is ‘peak demand’: it vindicated what is routinely lambasted by oil majors as a myth: peak oil — the concurrent peak and decline of global oil production.

The HSBC report you need to read, now

INSURGE intelligence obtained a copy of the report in December 2016, and for the first time we are exclusively publishing the entire report in the public interest.


Read and/or download the full HSBC report by clicking below:

Headquarted in London, UK, HSBC is the world’s sixth largest bank, holding assets of $2.67 trillion. So when they produce a research report for their clients, it would be wise to pay attention, and see what we can learn.

Among the report’s most shocking findings is that “81% of the world’s total liquids production is already in decline.”

Between 2016 and 2020, non-OPEC production will be flat due to declines in conventional oil production, even though OPEC will continue to increase production modestly. This means that by 2017, deliverable spare capacity could be as little as 1% of global oil demand.

This heightens the risk of a major global oil supply shock around 2018 which could “significantly affect oil prices.”

The report flatly asserts that peak demand (the idea that demand will stop growing leaving the world awash in too much supply), while certainly a relevant issue due to climate change agreements and disruptive trends in alternative technologies, is not the most imminent challenge:

“Even in a world of slower oil demand growth, we think the biggest long-term challenge is to offset declines in production from mature fields. The scale of this issue is such that in our view rather there could well be a global supply squeeze some time before we are realistically looking at global demand peaking.”

Under the current supply glut driven by rising unconventional production, falling oil prices have damaged industry profitability and led to dramatic cut backs in new investments in production. This, HSBC says, will exacerbate the likelihood of a global oil supply crunch from 2018 onwards.



Four Saudi Arabias, anyone?

The HSBC report examines two main datasets from the International Energy Agency and the University of Uppsala’s Global Energy Systems Programme in Sweden.
The latter, it should be noted, has consistently advocated a global peak oil scenario for many years — the HSBC report confirms the accuracy of this scenario, and shows that the IEA’s data supports it.

The rate and nature of new oil discoveries has declined dramatically over the last few decades, reaching almost negligible levels on a global scale, the report finds. Compare this to the report’s warning that just to keep production flat against increasing decline rates, the world will need to add four Saudi Arabia’s worth of production by 2040. North American production, despite remaining the most promising in terms of potential, will simply not be able to fill this gap.

Business Insider, the Telegraph and other outlets which covered the report last year acknowledged the supply gap, but failed to properly clarify that HSBC’s devastating findings basically forecast the longterm scarcity of cheap oil due to global peak oil, from 2018 to 2040.

The report revises the way it approaches the concept of peak oil — rather than forecasting it as a single global event, the report uses a disaggregated approach focusing on specific regions and producers. Under this analysis, 81% of the world’s oil supply has peaked in production and so now “is post-peak”.

Using a more restrictive definition puts the quantity of global oil that has peaked at 64%. But either way, well over half the world’s global oil supply consists of mature and declining fields whose production is inexorably and irreversibly decreasing:

“If we assumed a decline rate of 5%pa [per year] on global post-peak supply of 74mbd — which is by no means aggressive in our view — it would imply a fall in post-peak supply of c.38mbd by 2030 and c.52mbd out to 2040. In other words, the world would need to find over four times the size of Saudi Arabia just to keep supply flat, before demand growth is taken into account.”

What’s worse is that when demand growth is taken into account — and the report notes that even the most conservative projections forecast a rise in global oil demand by 2040 of more than 8mbd above that of 2015 — then even more oil would be needed to fill the coming supply gap.

But with new discoveries at an all time low and continuing to diminish, the implication is that oil can simply never fill this gap.

More https://medium.com/insurge-intelligence/brace-for-the-financial-crash-of-2018-b2f81f85686b#.z9uwvj2gd

Full report to clients : https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view




If that grabs your attention --- skip over to the End of Oil thread.... there are plenty more facts from good sources that support the above....

Ed (4 mths ago)
Such as:

https://assets.bwbx.io/images/users/iqjWHBFdfxIU/icbkDFACM4iA/v2/800x-1.png

hellohellohello (4 mths ago)
I can see why not much discussion happens here now. It's a bulletin board of links, not real conversation
It's been fun. Clearly you're pining hard for that crash. Just remember, when that correction comes and you don't get your Sp500 at 600, It doesn't count (as per your own criteria). Good luck to you.

Ed (4 mths ago)
I am not pining for the crash.... it is the last thing I want.

But the facts are the facts - feel free to dispute what has been posted


archcherub (4 mths ago)
Dow Jones just reached 21,000 yesterday!
Trump that economy!

Ed (4 mths ago)
Real earnings are up 2.5% off the 2009 lows, The Dow is up 210%


http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/05/20170306_eod8.jpg

Ed (4 mths ago)
The global economy --- on QE and ultra low interest rates --- in one image:

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/05/20170308_EOD15.jpg

Ed (4 mths ago)
This is Worse than Before the Last Three Crashes

How long can this surge in stocks go on? That’s what everyone wants to know. Projections range from “forever” – these projections have become increasingly common – to “it’s already finished.” That’s a fairly wide range.

Everyone has their own reasons for their boundless optimism or their doom-and-gloom outlooks. But there are some factors – boundless optimists should push them aside assiduously – that, from a historical point of view, would trigger tsunami sirens. Because in the end, it’s not different this time. And the cycle of “multiple expansion” and “multiple compression” is one of those factors.

For example, a stock trades at a price that gives it a P/E ratio of 20 (stock price is 20 times earnings per share). When earnings per share remain flat over time, but the stock price rises, then the P/E ratio (the multiple) expands. When this spreads across the market, even when aggregate earnings remain flat, it means “rally.”

And earnings have been flat since 2011! The other day, I posted a chart that showed that earnings of the S&P 500 companies in Q4 2016 were back where they’d been in Q4 2011. So five years of earnings stagnation. Yet, during those five years, the S&P 500 index soared 87% [read… S&P 500 Earnings Stuck at 2011 Levels, Stocks up 87% Since].

The thing that changed during those five years was the P/E ratio. This combination of flat earnings and soaring stock prices, and thus soaring P/E ratios, is, historically speaking, not a good thing when it drags on for too long. This chart shows the S&P 500 P/E ratios on every January 1 of the year. This aggregate P/E ratio has nearly doubled from 14.9 on January 1, 2012, to 26.7 on March 3, 2017:

http://wolfstreet.com/wp-content/uploads/2017/03/US-SP500-pe-ratios-2012-2017.png


More http://wolfstreet.com/2017/03/04/pe-multiple-expansion-at-record-multiple-compression-coming/

Ed (4 mths ago)
Atlanta Fed GDPNow Forecast Spirals Down in Amazing Manner

Where has all the optimism gone?

The Atlanta Fed’s GDPNow model, which forecasts GDP growth in the US in the current quarter, picks up data as it is released and changes the forecast in real time. As the quarter advances and as more data is included, it becomes a more accurate predictor, not of actual economic growth, but of GDP as measured in the first estimate for that quarter by the Bureau of Economic Analysis (BEA). So now we’re 67 days into the first quarter, and the GDPNow forecast has been spiraling down in an amazing manner for the past nine days.

The model now forecasts GDP growth in Q1 of 1.2% seasonally adjusted annual rate. This means that if the economy continues to grow at this rate for the rest of the year, annual GDP growth would be 1.2%, which would be the worst since the Financial Crisis.

Today’s down-tick from yesterday’s GDPNow forecast of 1.3% growth was caused by the contribution of “inventory investment” to GDP – when inventories rise or fall – as reported this morning by the Census Bureau in its wholesale trade data release. According to this data, the contribution of inventory investment to Q1 growth fell from -0.72 percentage points to -0.79 percentage points.

Yesterday’s release of the GDPNow forecast had plunged from 1.8%, as reported on March 1, to 1.3% due to three crummy data points on March 2, March 3, and March 6 that lowered growth forecasts:

Growth in real personal consumption expenditures fell from 2.1% to 1.8%.
Growth in real nonresidential equipment investment fell from 9.1% to 7.3%.
Contribution of inventory investment to Q1 growth fell from -0.50 percentage points to -0.72 percentage points.

The Atlanta Fed’s chart shows the 9-day plunge from 2.5% on February 27 to 1.2% today (red marks added):

http://wolfstreet.com/wp-content/uploads/2017/03/US-GDPnow-q1-2017-03-08.png


More http://wolfstreet.com/2017/03/08/atlanta-fed-q1-gdpnow-forecast-spirals-down-in-an-amazing-manner/


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