Equities performing in-line with change in analysts’ optimism14 November, 2012, 20:34. Posted by Zarathustra
For a while, the notion that the Fed’s quantitative easing (or QE-Infinity) inspired a lot of commentators saying things like “don’t fight the Fed”. But then, stocks are now no higher than they were right before the announcement.
Just as we have not been particularly optimistic about Chinese equities because of falling earnings, changes in equities level often simply reflects the changes in fundamentals such as earnings outlook. As the excellent chart below from Albert Edwards neatly points out, change in S&P 500 and change in analysts’ optimism about earnings outlook are still very much correlated. Certainly, seemingly unlimited money printing (which is not even true by the way) does not mean that fundamentals no longer matter.
Source: Société Générale
And as Albert Edwards’ colleague Andrew Lapthorne noted:
the outlook for earnings has been extremely poor in recent weeks. Yes, the US reporting season led to an improvement in near term (2012) earnings forecasts with the ratio of upgrades to total estimate changes for 2012 earnings rising from 44% to 50% over the past month, but earnings momentum for 2013 has slumped, dropping from 48% to 42%… For earnings momentum to collapse during a reporting season is highly unusual, as optimistic forecasts are generally reeled in over the period between reporting seasons.