S&P500 Profits Ex 3 Oil Cos = Awful

Monday, May 19, 2008 | 12:09 PM

Last week, Larry Kudlow wanted to look at the SPX earnings ex-Financials. My response: This was like looking at my own baseball hitting record, ex strikeouts. Doing so turned me into a 400 hitter!

Bloomberg poses the opposite question today: How do the Yankees look minus their biggest hitters: Matsui, Jeter and Posada?  In market terms, the question Bloomie asks is "How does the S&P500 profits look minus the three largest Oil stocks?

The answer? Not so good:

"Take away Exxon Mobil Corp., Chevron Corp. and ConocoPhillips and profits at U.S. companies are the worst in at least a decade.

Without the $70 billion that oil producers earned in the last two quarters, profits at companies in the Standard & Poor's 500 Index tumbled 26 percent and 30.2 percent, the biggest decreases for any quarter since Bloomberg started compiling data in 1998.

Energy companies made up almost half the income growth reported by S&P 500 companies in the first three months of 2008 as oil prices surged past $100 per barrel, the data show." (emphasis added)

If profits are the "mother's milk of corporate gains," then thank goodness for $125 Oil. Otherwise, corporate America would be suffering from an enormous profit recession.

Now for the reason I am less sanguine about S&P500 intermediate term gains than my peers: Consider what this means in terms of (non-energy) valuations. The trailing 12 month earnings of the S&P 500is ~21, -- way above its 60-year average of ~16.


UPDATE: May 199, 2008 2:43pm

Why is this important? Because if you are relying on SPX profits to demonstrate the strength of the economy, it matters who and what is the source of those profits.

If, as Bloomberg demonstrates, only 3 firms out of 500 are resposible for all fo the gains, that is quite telling...


Oil Producers Mask Decade's Worst S&P 500 Profit Drop
Michael Tsang and Darren Boey
Bloomberg, May 19 2008

Monday, May 19, 2008 | 12:09 PM | Permalink | Comments (37) | TrackBack (1)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference S&P500 Profits Ex 3 Oil Cos = Awful :

» Why the Bear Is Alive and Well from The Big Picture
A column in the Sunday NYT purports to look at Why the Bear Is Alive and Well. While the main thrust of the column is on point -- namely, stocks remain too expensive for a true bear market bottom. However, it does revive the meme that won't die -- name... [Read More]

Tracked on Sep 7, 2008 8:51:38 AM


Holy Conundrum...higher oil will crush the consumer...lower oil will hurt S&P profits.

If they install a windfall tax on oil company profits and oil continues to rise, they will manage to remove the only benefit of higher oil.

Posted by: Steve Barry | May 19, 2008 12:18:37 PM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™