The S&P 500 may be rocked with corrections from time to time, but they never endure, or so recent history shows. The S&P closed yesterday at less than 1% under its post-2000 high. So far this year, the S&P 500 is up 2.6%. For the past 12 months, the index has climbed 13.9%. If price is taken at face value, optimism continues to dominate the world of equities trading.
How does one square that with the news that earnings growth is decelerating? As The New York Times reported over the weekend, S&P 500 earnings are no longer rising at a double-digit rate, as they were previously in recent years. Earnings for the index “are expected to grow by only 3.3 percent in the first quarter of 2007, according to Thomson Financial,” the Times advised. “This represents a huge drop in expectations, as Wall Street analysts at the start of this year were expecting a first-quarter growth rate of 8.7 percent.”
Perhaps it’ll be a sign of some relevance if the index makes a new high for the post-2000 era, although there’s reason to wonder if that’s imminent. “I think we’re all anticipating the earnings season,” Tim Hartzell, chief investment officer at Kanaly Trust Co., told AP. “I think everyone is going to wait on their heels and see how the numbers are going to come through.”
Of course, if the numbers don’t astonish like they used to, Mr. Market may be inclined to grade on a curve. “Investors have kind of lowered the bar” for first-quarter earnings, “making it easier for stocks to outperform,” Christopher Johnson, chief investment strategist at Johnson Research Group, told Bloomberg News. “The numbers that we see coming in aren’t much worse than what we saw last quarter. We could see some bright spots.”