The Big Picture

« Countries GDP as US States | Main | Global IPOs 2006, by dollar volume »

Earnings Season Begins

Tuesday, January 16, 2007 | 06:00 AM

in Data Analysis | Earnings | Investing | Markets

Earnings season begings in earnest this week, with several majors reporting. There's a nice preview at the public site of the WSJ:

TUES Jan 16
Intel

WEDS Jan. 17
Apple
J.P. Morgan Chase & Co. & Washington Mutual
AMR Corp. & Southwest Airlines

THURS, Jan. 18
IBM
Merrill Lynch

FRI, Jan. 19
Citigroup
General Electric
Motorola

I came across three very interesting but different issues relative to earnings season: The first was via Birinyi Associates, who looked at market performance relative to whether we were in or out of "Earnings Season" over the past 17 quarters.

As the chart and 1st table below shows, markets seem to do better off season than on:

The second was from Morningstar, who evaluated each S&P sector to determine relative valuation. Energy was the only sector they determined to be beow fair value.

One thing worth noting: Stocks stend to swing way above and below fair value . . .

~~~

Lastly, something stood out in today's WSJ which I need to investigate further. The Journal noted that:

"According to both Thomson and Reuters, the S&P 500 is trading at less than 15 times this year's expected earnings, which is cheap compared with long-term averages of about 20 times earnings."

Long term average of 20 forward P/E? That sounds awfully high. I need to look into the source of that, including whatever period it covers. My guess is that its a shorter term history (10 or 20 years?) dominated by the high P/E 1990s period, skewing it higher.

Source:
Earnings' Stretch Run
If Corporate Growth Slows, Stocks Could Look Too Pricey
PETER A. MCKAY
WSJ, January 16, 2007; Page C1
http://online.wsj.com/article/SB116889514651776981.html