With the S&P 500 down 10.5% through February 11th,
questions about the health of the economy seem to intensify daily. The concerns
typically go something like this: If the
financial markets are a predictor of where the economy is headed, has the plow
horse finally lost traction? Is a
recession looming?
An old joke says the stock market has predicted
19 of the last five recessions. Stocks
don't always lead the economy, and earnings clearly don't show that things are
awful. With 375 S&P 500 companies having
reported Q4 earnings as of February 11th, 70.7% have beat estimates, although
earnings are down 5% from a year ago it's all due to just one sector, energy.
Of the 375 companies that have reported, only 23 of them have been energy.
Excluding those 23 energy companies, earnings for the other 352 companies are
up 1.0% from a year ago. So, for those
claiming the market drop is due to declining earnings, it seems more like an
energy story than an economic one. It's plow horse earnings growth outside of energy,
but it's earnings growth.
