Yardeni's Voice

Bull\Bear Ratio >>> à la croisée des chemins...indicateur intéressant >>> depuis début 2006 le ratio bull dégringole, annonciateur des tracas actuels...

Autre indicateur >>> le S&P 500 Transportation

Il pourrait aussi figurer dans la file de Whynot






De là à y voir les prémices d'une récession...

Ed's Morning Briefing du 22 août...

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ECONOMICS: Is a super-spike in the price of crude oil still a possibility? It was looking that way a couple of weeks ago as Hezbollah and Israel started pounding each other and the price of oil jumped to a new record high of $78.40 on July 14. The price settled back down to about $70 after a ceasefire started on August 14. Of course, neither Lebanon nor Israel export oil, but the fear was that the war might spread and trigger a confrontation between Israel and Iran, which produces 4 mbd. Iran's nuclear program has been an issue for the oil market since the beginning of the year. It was again yesterday, when Iran's supreme leader, Ayatollah Ali Khamenei, said the day before that his country "has made its own decision" and "will continue its path" on nuclear-development work. Iranian President Mahmoud Ahmadinejad made similar statements last week. Meanwhile, US and European officials continue to wait for a formal reply from Iran to an incentives package put forward in June. Iran's Foreign Ministry during the weekend said it plans to offer a "multifaceted response" to the European incentives proposal, which was offered with US support. In other words, Iran is likely to continue with its program while stalling as much as possible on the diplomatic front. In any event, the UN will probably impose some lame sanctions on Iran, and the country is likely to continue to export oil. An American military response is possible before the end of Mr. Bush's term, though not very likely, especially not before the Congressional elections. Short of any such military action against Iran's nuclear sites, a super-spike in crude oil is unlikely as well. Even the much-feared hurricane season is a no-show so far. Still, our "Commitments of Traders" chart book shows that speculators were quite long on August 15, holding 83,794 contracts, equivalent to nearly 84 million barrels of oil. Meanwhile, the latest global supply data from the US Energy Department show that OPEC output peaked at 31.6 mbd during September 2005 and fell to 30.4 mbd in May. This drop was led by a combined decline of 0.7 mbd from Saudi Arabia and Iran over these eight months. Indeed, August's Oil Market Intelligence predicts that OPEC will need to reduce output by 1 mbd in 2007 to make room for surging non-OPEC supplies, and that will still leave 1 mbd going into storage, including strategic reserves. Russia recently exceeded Saudi Arabia as the world's largest producer of oil in the world. The big surprise in coming years could be rising production in China, which rose to a record 3.7 mbd in May. Of course, this doesn't come close to meeting China's rapidly growing demand, which jumped to a record 7.0 mbd over the three months through May. Demand is also hitting new highs in India and Brazil. While high oil prices aren't slowing demand in these three fast-growing countries (the BICs), oil demand has weakened just about everywhere else, as you can see in the Alert below. So while total global oil demand edged up to another record high in May, the growth rate has slowed significantly, and there is plenty of oil available to meet demand. Hence, a super-spike is unlikely over the rest of this year and in 2007. * Global Oil Demand: Are high oil prices depressing oil demand? In June, global oil demand hit a record high 84 mbd, but the growth rate slowed significantly. Emerging economies' demand hit new record high, led by China and India. Latin American demand also strong. Usage in the industrialized economies fell to lowest in almost 2 years. Global oil supply remained north of 84 mbd in the 12 months ending May. * Global Oil Supply: Who's pumping? OPEC output fell to a 21-month low of 30.4 mbd in May from a recent peak of 31.6 mbd last September. Non-OPEC supply edged up for the 2nd straight month to 42.9 mbd in May, after falling steadily from December peak of 43.3 mbd to 42.8 mbd in March. Within OPEC, Saudi Arabia, Nigeria, Kuwait, Iran, and Indonesia account for the decline. Outside of OPEC, US, Chinese, and Russian output is rising, while North Sea and Canadian production is falling. Mexican output has been in flat trend for most of the decade. * Energy Prices: What's up with energy prices? Crude oil is fluctuating at record highs on geopolitical tensions in the Middle East. The Israeli-Hezbollah conflict pushed crude oil futures to $78 per barrel last month; the ceasefire sent futures back down toward $70 per barrel. News that Iran has ruled out suspending its nuclear program lifted futures in the most recent session. Gasoline pump price hits new record high, while natural gas price remains volatile around recent lows.

Ed's Morning Briefing du 1er septembre:

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Back to school and back to the same (very) old debate about the likelihood of a housing recession leading to an economy-wide, consumer-led recession. The good news is that this tiresome issue will be resolved shortly since housing is in a recession. Housing starts are down 20.8% from January's peak of 2.27 mu to 1.80 mu in July. In the GDP accounts, real residential investment fell 9.8% during Q2, following declines of 0.9% and 0.3% during Q4 and Q1, respectively. This category is likely to remain very weak over the rest of the year. However, Q2 real GDP was revised up from 2.5% to 2.9%, in part because of a huge upward revision in nonresidential construction from an increase of 12.7% to up 22.2%! The key question is whether consumers will hunker down as housing-related employment slows and flattening home prices might cause them to save more and spend less. We will know more about the job situation this morning. We are expecting a gain of about 150,000. Admittedly, August's Consumer Confidence Index shows that consumers perceive that jobs are less plentiful, though they aren't that hard to get yet. And the ADP private payroll number was up only 107,000 in August. On the other hand, the weekly jobless claims data continue to suggest that relatively few people are actually losing their jobs. Moreover, the Monster Employment Index showed a monster gain in August to a record 173 from 165 in July. While retailers reported mixed results during August, some indicated that their sales momentum was improving during the back-to-school shopping season. In any event, the third quarter is starting out strong with solid gains of 0.5% in personal income and 0.8% in personal consumption expenditures. Falling gasoline prices and fixed-rate mortgage yields (along with the 10-year yield) should help revive consumer confidence over the rest of the year. Given the weakness in housing and the tame 0.1% increase in July's core personal consumption expenditures deflator, the Fed may very well be done raising rates over the rest of the year. Meanwhile, profits remain a very powerful growth booster for the economy. Profitable companies tend to expand by hiring workers and spending more on plant and equipment. Let's review the latest awesome data: (1) Q2 NIPA after-tax profits based on tax returns hit a new high of $1,349 billion (saar), up 21% y/y. Profits from current production, or the profits that are in cash flow, also posted a new record high of $1,135 billion, up 20% y/y. (2) Total corporate cash flow rose to yet another new high of $1,366 billion during Q2, despite reduced depreciation allowances following expiration of the tax incentives, as cash flow profits continue to soar. (3) Profits account for the largest share of the US economy on record! During Q2, profits were a record 9.7% of national income and 8.6% of nominal GDP. (4) The corporate profit margin remained at 14.2% last quarter, considerably above the historical average of 10.2%, and surpassing the 14.0% record high set over a half century ago. There may be more upside in the margin for nonfinancial corporations. At 8.9% the margin is near 1997's cyclical peak of 9.6%, but still well below 1966's 11.9% peak. * Profits & Margins: Are profits still on a tear? Rip roaring! Q2's NIPA profits climbed to a new high. Cash flow from current production also continued to hit fresh highs. During Q2, profits accounted for a record 9.7% of national income, and 8.6% of nominal GDP. The corporate profit margin remained at a record high of 14.2% last quarter. * Consumer Confidence: What depressed consumers in August? Concerns about jobs and gasoline prices, according to the latest Conference Board survey. The Consumer Confidence Index (CCI) fell to a 9-month low of 99.6 last month, though that's still well above last year's low of 85.2 after the hurricanes. The present and expectations components both fell during the month. Respondents saying "jobs plentiful" dropped to lowest reading this year, while those saying "jobs hard to get" remained near April's 4½-year low. Consumers were less optimistic about the labor market 6 months from now. September confidence could get a lift from the recent decline in gasoline pump prices and a still favorable jobs market. * Weekly Consumer Monitor: What's the Consumer Score? We've lowered our subjective rating to 64 (out of 100) from 66 last week. Jobless claims remain at levels that reflect tight labor market. Continuing claims still low, but at 6-month high. Yearly growth rate in chain store sales moved back above 3% on 4-wa basis. Mortgage applications at fresh 3-year low using 4-wa. Personal loan growth near zero, while home equity borrowing falling further below zero. Weekly Consumer Comfort Index down 9 points during August. Gasoline usage hits another new high. Retail stocks moving sideways. * US Factory Orders: Another good year for capital goods manufacturers? No, a great year so far! Orders, shipments, and earnings remain on steep uptrends, and are at or near record highs, for industrial machinery, electrical equipment, construction equipment, aerospace, and mining/drilling machinery. Tech doesn't look as great by comparison. Strong corporate profits are driving demand for capital goods and strong revenues are boosting the profits of capital goods producers. Solid profits growth, along with robust exports, should continue to boost business for capital goods manufacturers over the remainder of the year.

Bsr,

Voici la newsletter du 26 octobre:

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KEY POINTS: Fewer questions about the housing recession. Rooting for more gridlock. Free trade rocks. Commodities led by lead. Europe led by capital goods exports. China hosts a big summit for African leaders. Why European stock markets lead the S&P 500. With G6 earnings slowing, a P/E-led rally may be underway. I) ECONOMICS: It was windy in the Windy City yesterday, but at least Chicago was warmer than Milwaukee. In both towns, I wasn't asked as often about the possibility that the housing recession might spill over to consumer spending. On the other hand, everyone asked about the likely impact of the Democrats winning a majority in the House during the mid-term elections. However, no one seemed particularly concerned one way or the other. Everyone seems to agree that the more gridlock the better. I observed that the Bush Administration doesn't have any economic agenda other than to extend the tax cuts past 2010. That won't happen over the next two years if the Democrats win. But the tax cuts could be extended before they expire depending on who wins the White House in 2008 and the makeup of Congress. Treasury Secretary Hank Paulson seems to be focusing on making US capital markets more competitive with London. It is a good thing that the Bush folks don't have any other major economic policy initiatives. The economy always does best when the politicians keep our tax rates low and don't meddle with the economy. The domestic and global economies do especially well when the proponents of free trade prevail over the protectionists. So far, Mr. Paulson has done a good job of muzzling Senators Schumer and Graham, who seem to aspire to be the Smoot and Hawley of our day. Thanks to the proliferation of free trade, the global economy is booming, with no sign of a meaningful slowdown. While the price of oil is down sharply from its peak during the summer, industrial metals prices are soaring. It may very well be that lower oil prices are boosting global economic growth and providing another lift to other industrial commodity prices. Our trusty CRB raw industrials spot price index--which is a great global boom/bust indicator--continues its vertical ascent into record territory led by lead, as well as tin and zinc. Yesterday, Debbie and I reviewed the latest macroeconomic data on two of the most dynamic economies in Asia, namely China and South Korea. Both are growing rapidly led by strong exports. Below, we review the relationship of Germany's business confidence to orders, production, and the stock market. Here are some of our key findings: (1) In October, Germany's Ifo business confidence index remained near June's 15-year high of 106.8. It rose for the first time in four months, edging up to 105.3 from 104.9 in September. (2) The Ifo current situation index continued to climb to new highs, hitting 111.8 this month, the highest since April 1991. The expectations index was little changed at September's 10-month low, edging up to 99.2 from 98.9, reflecting concerns about the VAT increase scheduled for the beginning of next year. This index peaked at 105.6 in March. (3) German exports were up nearly 10% y/y in August. The Ifo index suggests export growth may have increased still faster in September and October, even factoring in its recent setback. (4) The current situation component of the Ifo index closely tracks the DAX. With this index at a 15-year high, German stock prices are likely to move higher. Germany has numerous world-class capital goods manufacturers, which continue to benefit from the global capital spending boom. A big customer is China, which is now starting to also spend a great deal of money on infrastructure projects in Africa to develop the continent's natural resources, which are badly needed to keep China's industrial economy growing rapidly. The Forum on China-Africa Cooperation is set for November 3-5 in Beijing and the heads of 48 African countries are expected at the biggest summit China has held in modern history. China will strike a number of agreements on trade, investment, aid and debt forgiveness when it hosts. This may very well be the first global economic boom that has spread to Africa. Our "Wealth of Nations" theme is truly a global one. * Commodities: What's the CRB raw industrials spot price index up to? A record high, confirming that the global economic boom is intact. This index is our favorite indicator of global economic activity, and it is heading straight up. The index exceeded its previous cyclical peak of the mid-1990s at the start of this year, and is now nearly 20% above that level. Metals prices account for the surge, soaring 54% so far this year, on widespread strength. Lead, tin, and zinc are all at record highs. Demand for copper has weakened in recent months along with housing. Still, the price is nearly 60% higher than at the start of the year. The non-metal components of the CRB aren't doing much. * Germany's Ifo, Orders, & DAX: What's the mood of German business executives? Very upbeat about the present, less so about the future. The Ifo business climate index edged up to 105.3 this month, near June's 15-year high of 106.8. The current situation index hit a fresh 15-year high, while concerns about the VAT increase kept the expectations index near 10-month low. The recent setback in expectations suggests weaker orders and production growth ahead, while the overall index suggests export growth likely accelerated into the fall. Meanwhile, the surge in the current situation index to a 15-year high is predicting a continued rally in the DAX. II) STRATEGY: In Greenwich, CT, one of our hedge fund accounts asked us recently to explain why the major continental European stocks markets have been outperforming the S&P 500 since the start of 2004. Since then the MSCI for Europe is up 50.5%, while the S&P 500 is up 24.3% through yesterday's closing. The German DAX and the French CAC are up 58.0% and 52.4% over this period. One possible explanation is that Technology has generally underperformed over this period and the European indexes have less weight in the sector, and more weight in capital goods industries, which have benefited greatly from the global boom. Industrials are up 26.4% and 76.6% in the US and in Europe, respectively, since the start of 2004. This year so far, of the 56 industries that we can compare between the two, the US is beating Europe in only 13, including, of course, Aerospace & Defense. Only 4/10 US sectors are beating their European counterparts, namely Telecommunication Services, Energy, Consumer Discretionary, and Information Technology. When I was in London a few weeks ago, a few PMs were bullish on European telecom stocks, figuring that they were lagging the US telecom stocks, but might be set to catch up. The big outperforming sectors in Europe so far this year are Materials, Utilities, and Industrials. Our latest "Global Earnings Month" shows that Europe's outperformance is attributable to earnings. Since the start of 2004 through October of this year, forward earnings are up 100.2% and 86.5% for Germany's DAX and France's CAC, while the S&P 500 forward earnings is up 52.9%. Forward earnings growth for the G6 is slowing now suggesting a more subdued outlook for stock market gains heading into the new year. However, with G6 P/Es the lowest in 11 years, we think that a P/E-led rally is likely over the rest of the year and into 2007. Inflation remains subdued among the G6 economies and their central banks aren't likely to raise interest rates much more, if at all, over the next 6-12 months. * S&P 500 vs. European Counterparts Performance (YTD): Is the S&P 500 beating its European counterparts so far in 2006? Not at this point, but it looks close on the surface. The S&P 500 LargeCap's 9.6% rise is trailing MSCI Europe's by 2.5 percentage points. Telecom, Energy, Tech, and Consumer Discretionary are the only US sectors ahead of their European counterparts. Just 13/56 US industries are beating Europe too. All of the industries in US Materials and US Utilities are trailing their European counterparts. * G6 Forward Earnings Squiggles: How did G6 forward earnings perform in October? They all rose to record highs. However, consensus annual 2006 and 2007 forecasts are starting to edge down for most of them. France was the only country with a rising forecast for 2006 and 2007. The 2007 estimates edged up for Germany and Japan too. Double-digit earnings growth expected for all except France and Japan in 2006. Double-digit growth forecasted in 2007 for Canada, Germany and Japan. On average, G6 expected to grow earnings by 12.5% in 2006 and 10.2% in 2007, down from September's 13.1% and 10.4% for those two years. * G6 Forward Earnings Momentum: Which G6 country had the best earnings momentum in October? Germany led with 20.2% y/y. All the other G6 still in the double-digits: Japan (15.9%), France (14.1), the UK (14.0), Canada (13., and the US (10.7). All G6 countries now have double-digit stock price momentum y/y, but Japan was the only country to weaken in October. Canada is now the only country with forward earnings momentum outperforming its price momentum y/y. The average forward earnings increase fell to 14.8% y/y from 19.5% in September. However, the average y/y price change improved to 16.2% in October from 13.5%. * G6 NERI: Among the G6, which way did the Net Earnings Revisions Indexes (NERI) go in October? The latest NERI readings are uninspiring and mostly weakened close to zero. France was the only country with a rising NERI as Canada turned negative again. Here's the score: France (2.9%), the UK (2.4), US (2.0), Japan (1.2), Germany (1.0), and Canada (-0.5). * G6 Valuation: What did G6 valuation multiples do in October? All of the G6 countries rose--reversing most of September's broad decline. P/E ratios remain near their lowest levels in more than 11 years even as the G6 average P/E rose to 13.8 from 13.5 in September. Here is October's score: Japan (17., US (14.6), Canada (13.9), Germany (12.4), France (12.4), and the UK (12.1).

Bjr,

Newsletter du 27 octobre:


KEY POINTS: Only 5.5% bought at the top of housing boom. The sellers, not the buyers are sitting tight. New home sales may have bottomed as builders cut prices. Gasoline usage soars to record highs as Americans go shopping and dining. The bull market is broadening as shown by the NYSE and Wilshire Indexes.

I) ECONOMICS: I ended my three-day tour of the Midwest in Kansas City yesterday. Two of Wall Street's bears had been in town the week before. So KC's PMs needed some cheering up. I did the best I could and left a box of chocolates at each account. I think the chocolates worked. I was told that one of the Street's biggest bears is more convinced than ever that home prices are just starting to plunge and will continue to do so next year, which will depress consumer spending and economic growth. So I guess the stock market must have it wrong. Actually, I think it has it right. Real GDP growth may be just under 3% for the second quarter in a row during Q3, when it is reported this morning. I suppose that can be described as a mid-cycle slowdown, though that is still quite impressive given the jump in oil and gasoline prices over the period. I am leaning towards better-than-expected economic activity ahead. I expect to see real GDP growth bounce back over 3% during Q4 and all four quarters of 2007. Should I be more worried about a plunge in home prices? After all, yesterday's WSJ article on the existing homes sales data for September reported that the 2.2% drop in the median price was the biggest drop since 1968, the start of this time series. This matched August's decline. The article also noted: "In addition to being the largest price drops in at least 38 years, the back-to-back declines are the first time median home prices have fallen since 1995." Later in the article, it is observed, "Despite the recent drop-off, house prices remain far above the levels of five years ago, and they continue to rise in some areas." In fact, the median existing home price is up 33% since September 2002. That's impressive, but hardly the kind of increase in value that occurs during bubbles. The NASDAQ more than doubled from the end of 1998 through early 2000. That was a bubble.

How many people actually bought right at the top? Existing single-family home sales totaled 6.2 million last year. That's only 5.5% of the number of households in the US. The value of existing home sales was $1.6 trillion during 2005, or only 8.8% of the value of total homeowners' residential real estate at the end of last year. (See Figure 29 in our "Analyst's Handbook: Real Estate.") Of course, for every household that bought at the top, there was another that sold at the top. Many of them are probably empty-nesters and retirees, who enjoyed substantial capital gains on the sale of their homes. Most of them probably traded down to a smaller domicile, and added the rest of their windfalls to their financial assets. This mostly explains why the saving rate is so low. The WSJ article was titled, "Home Prices Keep Sliding; Buyers Sit Tight." Actually, I think it is the sellers who are sitting tight and not accepting low-ball offers from buyers. In the past, housing recessions were associated with rising unemployment. This time, jobs are expanding and the economy is at full employment. In other words, the buyers can probably afford to pay more than they are offering if they really want the house. This is why I don't expect a significant drop in home prices. Instead, I expect they may just be flat for a while. The real surprise might be that they start rising again in 2008. Already, in early October, the home buying attitudes index, compiled by the Survey Research Center, jumped up to 136 from 116 in September. (See Figure 41.) The would-be buyers may already be back on the road looking for a home to purchase. Gasoline usage is soaring, and jumped to a new record high during the week of October 20. Coincidently, the S&P 500 Retailing Price Index and the S&P 500 Restaurant Price Index are also going straight up. Americans must be driving not only to look at houses, but also to shop and eat.
* New & Existing Home Sales: A bottom in home sales? Not yet for existing homes, but maybe for new homes. Homebuilders are cutting prices and offering freebies. So new home sales are up 9.2% the past 2 months, with the median new home price down 9.7% y/y, the most since 1970! There's plenty of demand at the right price. Existing home sales declined for the 6th straight month in September to a 2½-year low. However, mortgage applications to purchase a home are no longer falling very rapidly and the months' supply of both existing and new single-family homes may have peaked recently.
* New & Existing Home Prices: Is the housing bubble popping? It's definitely losing air. September's national median existing single-family home price fell 2.5% y/y, the largest decline since at least 1969. Prices were down 2.2% in the South, 2.4% in the Midwest, 3.1% out West, and 6.7% in the Northeast. In September, the median new home price dropped 9.7% y/y, the most since 1970. Regional breakdown, which is quarterly, understate the weakness, with Q3 prices above a year ago in the Northeast (19.3%), the Midwest (4.0%), and the West (1.6%), and near zero down South. The big drop in prices occurred during the final month of the quarter.
* Durable Goods: Is business still good for durable goods manufacturers? Yes. Durable goods orders and shipments remain on steep uptrends, and in record territory, both including and excluding the volatile transportation component. Excluding transportation, both orders and shipments were up nearly 9% y/y in the 3 months ending September. The 3-month averages of nondefense capital goods orders and shipments are both at record highs and up 10.1% and 8.7% y/y, respectively, suggesting that capital spending remains robust.
* Weekly Consumer Monitor: What's the Consumer Score? We're keeping our subjective rating at 76 (out of 100) this week. It was as low as 64 eight weeks ago. Jobless and continuous claims reflect strong jobs market. Yearly growth rate in chain store sales remains solid. Gasoline usage continues to hit new highs, with the y/y growth rate the highest since January 2003. Retail and Restaurant stocks at record highs. Weekly Consumer Comfort Index remains at 6-month high. Mortgage applications volatile around 3-year lows. Personal and home equity loan growth strengthening.

II) STRATEGY: We all know that the DJIA is at a record high. We all know that only a few of the 30 stocks in the DJIA are at record highs. We know that the DJIA is a price-weighted index. We know that the S&P 500 and the NASDAQ are still 9.1% and 52.9% below their record highs. The bears have made sure we are all aware of these facts.

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Nevertheless, I still believe that the bull market is broadening.

Not widely appreciated is that the NYSE Index is at a record high and exceeds its previous cyclical record high by a whopping 23%. Here are some interesting facts about this broad measure of the market:
(1) The NYSE Composite Index is designed to measure the performance of all common stocks listed on the NYSE, including ADRs, REITs and tracking stocks.
(2) In January 2003 the NYSE reintroduced the NYSE Composite Index under a new methodology that is fully transparent and rule-based. Under the new methodology, all closed-end funds, ETFs, limited partnerships and derivatives are excluded from the index.
(3) As of year-end 2004, the NYSE Composite consists of over 2,000 US and non-US stocks.
(4) It is a measure of the changes in aggregate market value of all NYSE-listed common stocks, adjusted to eliminate the effects of capitalization changes, new listings and delistings.
(5) The index is weighted using free-float market capitalization and calculated on both price and total return basis.

Another broad measure of stock market performance is the Dow Jones Wilshire 5000. It is back to its record highs of 2000. Here are some interesting facts from Motley Fool:
(1) The Index: Started in 1974, the Wilshire 5000 is often referred to as the Total Stock Market Index because it seeks to track the returns of practically all publicly traded, U.S.-headquartered stocks that trade on the major exchanges. Although this index is less well known than the others, it is in fact the largest index by market value in the world.
(2) Fun Fact: The Wilshire 5000 is currently composed of more than 6000 companies, but the Wilshire 6307 just doesn't have that certain zing to it, so we're stuck with 5000. Plus, the number changes frequently.
(3) Type of Companies: All U.S.-headquartered equity securities with readily available price data. Stocks traded via the Bulletin Board system (mostly penny stocks and stocks of extremely small companies) are excluded.
(4) Number of Companies: Around 6300. The number fluctuates depending on the number of companies listed on the major exchanges.
(5) How It Is Measured: Similar to the S&P 500, the Wilshire 5000 is market-cap weighted giving larger companies more influence over the index movements.
(6) Strengths: The total market index is just that--an index of all U.S.-based companies traded on the New York, American, and NASDAQ stock exchanges. This makes the Wilshire 5000 the most diverse of any U.S.-based index.
(7) Weaknesses: The 500 largest companies comprise more than 70% of the index's value, so total performance is weighted toward the top few (relatively speaking) companies. The Wilshire 5000 does not contain any foreign companies, and thus measures economic performance in the United States only.
* October's Consensus 2006 & 2007 Expected Earnings Growth for S&P 500 Sectors: Is the S&P 500 headed for a mid-cycle earnings slowdown? We think so. S&P 500 earnings expected to rise 14% this year and 10% in 2007. 6/10 sectors and 73/119 industries expected to rise at double- or triple-digit rates in 2006. More impressively, 5/10 sectors and 84/119 industries expected to post double- or triple-digit earnings growth in 2007. 52/119 industries and 5/10 sectors expected to record faster earnings growth in 2007. Materials, Financials, and Energy lead in 2006, but are expected to slow dramatically in 2007. Consumer Staples, Health Care, Tech, and Utilities trailing S&P 500 earnings growth in 2006, but expected to outperform in 2007.
* October's Consensus 2006 & 2007 Expected Earnings Growth for S&P 500 Industries (2006 sort): Which sectors are expected to have double-digit earnings growth in 2006 according to October's consensus? They are: Materials (26.5%), Financials (21.7), Energy (18.5), Industrials (14.7), Telecom (13.5), and Consumer Discretionary (10.7). The laggards are Consumer Staples (4.4), Health Care (5.7), Tech (6.9), and Utilities (8.1). The biggest downward revisions from September: Energy (from 22.1 to 18.5) and Consumer Discretionary (from 12.6 to 10.7). There weren't any significant upward revisions. Double-digit growers in 2007: IT (17.7), Consumer Discretionary (13.9), Industrials (13.4), Utilities (13.2), and Consumer Staples (11.0).

Bonjour,

Ed's morning briefing du 30 octobre:



KEY POINTS: Yes, it is a housing-led mid-cycle slowdown. It should be over sooner rather than later. However, the profits slowdown is likely to continue through Q2-2007. The shortage of mortgage-backed securities may be contributing to lower bond yields, which should boost housing and leveraged buyouts. Lower petroleum prices, lower bond yields, higher consumer confidence and stock prices auger well for 2007. Upgrading Apparel Retail to market weight.



I) ECONOMICS: Power to the People! We lost our power Sunday evening because of some very high gusts of wind. No electricity. No TV. No Internet. I usually like to do some work in the evenings on the Morning Briefing on my desktop computer. So, instead, I put some logs in the fireplace, and by the light of the flickering flames, I started to write on my Blackberry. Just like the good old days. I could also have used my battery-powered laptop. But if the electricity doesn't come back in the morning, I can still email my comments to my colleagues who wake up at 5 am to put the Morning Briefing together with me.

After Friday's surprisingly weak GDP report, stock market sell-off, and bond rally, the question is whether the economy has lost power. I don't think so. Both consumers and businesses still have the power to keep the economy growing. That was clear in Q3's real GDP report which was boosted by a 3.1% (saar) increase in real consumer spending and an 8.6% gain in business capital spending. The bad news was that residential construction plunged 17.4% during Q3, following a drop of 11.1% during Q2. The good news is that the housing recession is so steep that it may be over sooner rather than later:
(1) Housing starts are already down 21.8% over the past 8 months. Building permits are down 26.9% over the past 12 months.
(2) New homes sales actually rose during August and September by 9.2%. This suggests that homebuilders are scrambling to work off their inventories by cutting production, while cutting prices and offering freebies to sell homes.
(3) Long-term fixed-rate mortgage yields are dropping along with Treasury bond yields. As a result, the mortgage applications index for new purchases seems to be stabilizing the past few weeks. The drop in fixed-rate mortgage yields should provide a good opportunity for homeowners with adjustable-rate mortgages to refinance.



Of course, the Q3 real GDP data are a first estimate and may very well be revised, as they usually are. However, a big upward revision isn't very likely this time since housing starts tend to be fairly accurate the first time they are reported. What about Q4? Debbie and I are lowering our estimate from 3.5% to 3.0%. Admittedly, it might be weaker since housing construction will be down again and auto production is also scheduled to be lowered to clear bulging inventories. Still, the solid rebound in the Consumer Sentiment Index suggests that consumer spending, the key driver of economic growth, has the power to move the economy forward. The drop in gasoline prices is already boosting interest in buying cars. And house-buying attitudes are improving as fixed-rate mortgage rates have declined and home sellers are offering some concessions.



Meanwhile, overseas economies continue to perform very well. South Korean industrial production surged 16.3% y/y in September, coming in well ahead of expectations. This suggests an upward revision to Korea's third quarter GDP growth. There has been some concern that if US consumer spending slows that might depress US imports and overseas economic growth. That was not the case in Q3, when some of the weakness in US real GDP was attributable to rising imports. The housing recession certainly isn't slowing US demand for imports. However, it is reducing the supply of mortgage-backed securities, which have been very popular with foreign investors. This is contributing to the drop in bond and mortgage yields, which should revive housing activity. Lower yields are also a windfall for leveraged buyout firms, which have plenty of the cash they need to leverage up to buy more US companies. In other words, they should continue to help push stock prices higher despite weaker economic growth. The bull market in stocks should also provide a boost to the economy.
* GDP: Mid-cycle slowdown? Yes, but it may be over soon. A steep housing recession, along with record high petroleum prices, slowed growth the past two quarters. Still, the economy is growing at nearly a 3% y/y rate despite these drags on growth. We expect GDP growth to bounce back to 3% this quarter, and likely stay above 3% through 2007. Falling gasoline prices and strong jobs market should give a boost to consumer spending and capital spending should remain strong. The worst of the housing recession is likely behind us, which suggests it will be less of a drag this quarter, and a positive sometime next year.
* GDP Deflators: What was core GDP inflation up to during Q3? It was still hovering in a two-year range around 3%. Core PCED up only 2.4%. Yearly price gain for residential construction has slowed dramatically. However, there has been a big jump in prices for nonresidential structures over the past few years, reflecting a surge in exploration-related structures. Prices for equipment & software continue to fall, led by declines in high-tech. Price gain subdued for US imported goods, ex petroleum, which remains near 2½-year lows.
* Consumer Sentiment: Why did the Consumer Sentiment Index (CSI) rebound to a 15-month high in October? Plenty of jobs and cheaper gasoline. CSI was stronger than mid-month preliminary reading, with both present situation and expectations indexes finishing the month higher. Confidence among low- and high-income families improved during the final two weeks of October. The expected inflation rate, however, was unchanged at 3.1% for the month, instead of falling to 2.9% as preliminary estimate showed. Both car- and house-buying attitudes improved this month.






II) STRATEGY: The lights are still out in our neighborhood this morning. I have enough power on my RIM's battery to finish writing this Morning Briefing. My backup plan is to sit in the car and write with my trusty gadget getting a charge from the car battery. It is hard to get charged up about the outlook for S&P 500 earnings for Q4 and the first half of 2007 given the rapid slowing in analysts' expectations for Q4 earnings and consensus expected forward earnings, which is an excellent 12-month leading indicator for actual operating earnings. (See Figures 20 and 24 in our "Strategist's Handbook.")
(1) When Q3's earnings season began earlier this month, analysts expected earnings to be up 13.8% and 12.0% y/y for Q3 and Q4. Now they expect 16.4% and 10.2%. In other words, as the blended actual/expected growth rate for Q3 has gone up, the expected growth rate for Q4 has gone down.
(2) Also falling is the growth rate for S&P 500 forward earnings. It is down to 10.2% during mid-October from 12.9% at the beginning of the year.
(3) In our "Earnings & the Economy," we show that forward earnings is a good leading and coincident indicator of several key economic variables. Yet, we are sticking with our 3.0%-3.5% real GDP forecast for 2007. On the other hand, the slowdown in forward earnings confirms our forecast that S&P 500 operating earnings growth is likely to slip to the low single-digits by Q2 next year. We have it up only 3.1% y/y by then. The following Alerts update our forward earnings analysis through October for the S&P 500 sectors and industries. These are based on our "Earnings Month," which is also now available on the website.
* S&P 500 Performance: How did S&P 500 do last week? It rose 0.6% for the week, with only 3/10 sectors and 39/119 industries down. Led by Consumer Discretionary, all 10 sectors and 101/119 industries are up so far in October. M-rated Energy's 2.5% recovery for the week lifted the sector back into second place in the 2006 rankings behind O-rated Telecom (up 28.9% ytd). 6/10 sectors are beating S&P 500's ytd gain of 10.3%.
* S&P 500 Sectors Forward Earnings & Valuation: Which sectors flattened out S&P 500 forward earnings in October? Four did so: Consumer Discretionary, Energy, Materials, and Telecom. 6/10 sectors rose with four rising to record high earnings: Consumer Staples, Financials, Health Care, and Industrials. Tech, Telecom, and Utilities forward earnings are still well below their record highs. Energy had the best forward earnings momentum recently, but may have peaked. P/Es rose for the S&P 500 and for 9/10 sectors. Energy, Consumer Discretionary, and Materials had the best multiple expansions.
* S&P 500 Industries Forward Earnings & Valuation: Who's got the best Mo among the S&P 500 industries? Retail (Computer & Electronics, Department, Drug, Specialty), Hotels, Resorts & Cruise Lines, Movies & Entertainment, Restaurants, Household Products, Brewers, Soft Drinks, Tobacco, Oil & Gas (Equipment & Services), Investment Banking & Brokerage, Asset Management & Custody Banks, Insurance (Life & Health, Multi-Line, Property & Casualty), Managed Health Care, Biotechnology, Aerospace & Defense, Machinery (Construction & Farm, Industrial), Electrical Components & Equipment, Railroads, Communications Equipment, Diversified Metals & Mining, Specialty Chemicals, Industrial Gases, and Integrated Telecom Services. Most of them are O-rated by us.

Bjr,

Ed's morning briefing du 31 octobre:


KEY POINTS: The election process could be a bigger problem for investors than the election results. The economy is in better shape than they say, as real incomes jump 4%. Why are analysts slashing their Q4 estimates? Mutual fund flows are flowing again. Another big January effect ahead?

I) ECONOMICS: Could Hugo Chavez become the next President of the United States? Smartmatic, the company that makes voting machines that will be used in 16 states, including Florida and California, and the District of Columbia, is suspected of being partly owned by Venezuelan President Hugo Chavez. According to today's WSJ, the company "came to prominence in 2004 when its machines were used in an election to recall President Chavez, which Mr. Chavez won handily--and which the Venezuelan opposition say was riddled with fraud." This would make for a great movie script, except it was just done in "Man of the Year," in which a comedian (played by Robin Williams) is elected to the Oval Office as a result of a programming error in electronic voting machines. The coming Congressional elections could get nasty if a recount is demanded in the closest races and there aren't any chad-less ballots to inspect. Bizarre. Even if the machines work properly, the election results are likely to be bizarre. Nancy Pelosi, who is rated 100% liberal based on her voting record, would be the Speaker of the House and third in line to serve as President of the United States. Several ultra-liberals would become chairmen of the various House committees. I agree with my friends Mark Melcher and Stephen R. Soukup at the Political Forum: "Without question, these men would do some harm..., but it would be limited and reversible. In the long-run, their principal accomplishment would be to help drive their party further into minority status." For more, see their article, "If Democrats Control the House," which is linked below.

If the Republicans lose, it will be partly because voters were misled by some folks in the media who believe that the economy is performing poorly, when it is actually in great shape. For example, according to CNN's Lou Dobbs, there is a war against the middle class in this country, immigrants are swarming into the US, and all the good jobs are going to India. Paul Krugman's October 6 column in the NYT was titled, "The War Against Wages." He claimed, "Major employers like Wal-Mart have decided that their interests are best served by treating workers as a disposable commodity." He didn't name any other allegedly abusive companies. "I don't know of another election cycle in which the economy was so good, yet the election prospects for the incumbent party looked so bad," said Frank Luntz, a Republican strategist. (NYT 10/26.) Even as gasoline prices plunged since the summer, the Survey Research Center reports that respondents saying the government is doing a good job on economic policy has increased only slightly to 20% from June's 12-year low of 13%.

In his latest column, Barron's irrepressibly bearish Alan Abelson is certain that "at some point even the lotus eaters in the Street will have to recognize that bad times are acoming." He bases his dire prediction on the latest real GDP report, which was depressed by the housing recession. He expects the worst is still ahead for housing and the economy. Indeed, I have recently received a rash of calls to discuss the prospects of a recession in 2007. The key issue, in my opinion, is the outlook for consumer spending, which is driven by employment and real pay per worker:
(1) Weekly jobless claims (running around 300,000) and the unemployment rate for adults (4.0% in September) suggest that the economy is at full employment. Yet it continues to create lots of jobs. Payroll employment is up 1.3% y/y through September. Furthermore, the latest benchmark revisions for March 2005-March 2006 found 810,000 more workers in payroll employment. That's a 0.6% increase, and well above the annual benchmark revisions over the last 10 years, which have averaged +/-0.2%. In my opinion, whatever Friday's employment report shows for October, just add 67,500 to get a more accurate read.
(2) As for real pay per worker, it is at an all-time record high and up 3.1% y/y over the past three months through September. Debbie and I calculate this number every month by dividing the data on wages, salaries, and benefits--which are included in personal income--by payroll employment and by the personal consumption expenditures deflator. The benchmark revisions to payroll employment suggest that real pay per worker may be growing more slowly by 0.6%.
(3) However, no matter how you slice it and dice it, real disposable personal income rose 3.9% y/y over the past three months through September, up from near zero earlier this year, and the strongest since December 2004.

Even if the economy performs as well as Debbie and I expect in 2007, there will be something else to worry about. There is always bird flu: "Scientists have discovered a new strain of bird flu that appears to sidestep current vaccines. It is infecting people as well as poultry in Asia, and some researchers fear its evolution may have been steered by the vaccination programs designed to protect poultry from earlier types of the H5N1 flu." (WSJ 10/31.)
* Personal Income & Consumption: Will consumers have the purchasing power to power their purchases over the remainder of the year? We think so. Real earned income per worker (including wages, salaries, and benefits) rose to another record high in September. It's had the same 3% trend growth rate as productivity for the past 10 years. Solid productivity growth should continue to drive consumers' purchasing power and spending higher.
* Consumer Spending On Energy: How much energy is there in consumption? Less than there was a couple of months ago. The percent of disposable personal income (DPI) that US consumers spent on energy goods and services fell to an 8-month low of 5.6% in September as energy prices dropped. That's down from July's 6.3% peak. Gasoline accounts for more of consumers' DPI than natural gas, home heating oil, and electricity combined. Its percentage fell to 3.2% from 3.8% in July. Lower energy costs should give a boost to consumer spending during the holidays.
* Mutual Fund Net Inflows: What are mutual fund investors doing? In September, $12.0 billion flowed into equity mutual funds, up from $5.8 billion in August, $1.8 billion in July, and an outflow of $1.9 billion in June. Money flowed into Global & International (+$8.5b), Growth & Income ($4.6b), Growth ($1.4b), Regional, ($0.9b), and Emerging ($0.7b) funds. It flowed out of Aggressive Growth (-$3.8b) and Sector (-$0.3b) funds. From November 2005 to April 2006 inflows into equity funds averaged monthly gains of $30.5 billion, led by $18.7 billion per month into funds investing overseas. The pace slowed from May-August, with equity funds averaging monthly gains of $2.4 billion. Now the pace appears to be picking up again, led by International funds.

II) STRATEGY: Are analysts seeing a recession in Q4? Joe and I don't think so, but we are hard pressed to explain why they are slashing their earnings estimates for the quarter, even as Q3 results once again beat their expectations. A few weeks ago, at the beginning of the earnings season, they expected $21.47 per share for S&P 500 operating earnings for Q3, the blended actual/estimate jumped to $22.26 at the end of October. So far, that is a 3.7% positive surprise. This follows positive surprises of 3.7% and 4.6% during Q1 and Q2. In early September, the analysts who cover the S&P 500 companies collectively estimated that Q4 would be $22.91 per share. By the end of October, their estimate had dropped 3.8% to $22.03. Undoubtedly, some of this reflects downward revisions by Energy analysts as the price of oil has taken a dive. However, could it be that other analysts aren't properly anticipating that lower energy costs will boost earnings for their companies? We think so. We also think that there could be another bullish January effect attributable to mutual fund inflows. Often in the past, these flows tended to be greatest at the beginning of the year, when bonuses are paid. If the bonuses are especially good, as they are likely to be for many workers early in 2007, that alone may boost their confidence in the economy and their willingness to invest in stocks. There may be a simpler reason why money pours into mutual funds when bonuses are good: 401(k) plans are automatically funded earlier in the year when the big bonuses are paid. Here are the January and February combined equity mutual fund inflows for 2000, 2004, and 2006: $100.8 billion, $69.7 billion, $59.7 billion. The prior years were good years for the economy and for bonuses during those three years. We wouldn't be surprised to see $100 billion pouring into these mutual funds at the start of 2007.
* S&P 500 Weekly Forward Earnings & Valuation: Are earnings still surprisingly strong? They are for Q3, which continued to come in strong with the blended Q3 estimate/actual y/y growth rate surging to 18.0% last week from 16.4%. However, the Q4 forecast fell to 9.1% from 10.2%. Forward earnings at a record high again for LargeCap last week, but not for MidCap and SmallCap. LargeCap and MidCap consensus annual forecasts for 2006 and 2007 rose last week, but SmallCap was mixed. Valuations for all three market caps is still recovering and almost back to pre-Q2 sell-off levels.
* Asset Management & Custody Banks: Will investors put more money in O-rated Asset Management & Custody Banks? With NERI positive again, we think they will. This Top 12 industry pick is up 10.3% ytd and close to a record high again, but isn't cheap at a 15% premium to the market. If earnings momentum remain on a strong and steady uptrend, we think the premium is well-deserved. Earnings rose at a double-digit pace in past 8/11 years and expected to do so again in 2006 and 2007. Long-term fundamentals are bullish, especially for firms offering 401(k) plans and IRAs, which are growing rapidly as companies terminate their Defined Benefit Plans.
* Investment Banking & Brokerage: Divest or acquire more O-rated Investment Banking & Brokerage? We remain bullish on this industry. This Top 12 industry is at a record high and ranks 7th in the S&P 500 with a rise of over 32% ytd. Forward earnings at a record high too in October as the consensus annual forecasts soared. Earnings growth expected to be in the double-digits in 2006 for a 4th straight year. NERI is 13th best in the S&P 500 and we expect it to stay strong. Firms still need to merge, acquire, and divest to remain globally competitive. Despite the recent jump, we believe the industry is still cheap at 11.6x earnings.

le paragraphe "strategy" est particulièrement intéressant pour les plus optimistes d'entre nous

Quelques extraits du "Strategist's Handbook" de Yardeni, daté du 18 octobre

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Tout frais, tout chaud, la réaction de Mr Yardeni suite aux élections américaines





KEY POINTS: Clash of the Titans: Speaker Pelosi vs. President Bush. Gridlock is good with one exception, i.e., the issue of free trade. Lower odds of a super-spike in the price of oil with one exception, i.e., Israel strikes Iran. Meanwhile, the global boom increases the appetite for chips, but not the profits for the semiconductor industry.


I) THE ELECTIONS: The results of yesterday's Congressional elections suggest two alternative scenarios for how Washington's new political gridlock will play out over the next two years: Stalemate or Compromise. Can you imagine Speaker of the House Nancy Pelosi and President George W. Bush agreeing on anything? I can't. I don't even see any room for compromise on their radically different political and economic agendas. And, of course, the campaign to win the White House in 2008 basically starts today. My guess is that Mr. Bush will be vetoing lots of bills initiated by House Democrats. In Congress, the Democrats will be inspired to corner as many Republicans as possible into voting against raising the minimum wage, against protectionist measures that would presumably benefit American workers, against a windfall profits tax on oil companies, and against higher taxes for upper-income Americans. If such measures pass the House and the Senate, then Mr. Bush will most likely veto them. While I am in the camp of those who believe that the stalemate version of gridlock is mostly bullish for the economy and for the stock market, I am concerned about rising protectionism. Congress isn't as likely to give the White House the "fast track" authority needed to negotiate multilateral and bilateral free trade agreements as in the past. Also, Treasury Secretary Hank Paulson may find much less support in Congress for diluting Sarbanes-Oxley, though this might be done administratively by the SEC. Our foreign policy interests may also suffer since America's enemies will be even more convinced that Bush is a lame duck. Indeed, exit polls indicated that one of the major issues for voters was the President's handling of our foreign affairs, especially in Iraq. The Republicans were hoping that voters would be swayed by the notion that they are better at protecting our nation from terrorists than the Democrats. Apparently, enough voters disagreed yesterday to give the Democrats the House, and possibly the Senate too. In any event, the election outcomes suggest that it is extremely unlikely that the US will use military force to stop Iran's nuclear weapons programs. In the short-run, this is bullish for stocks since it lowers the odds of a major crisis in the Middle East that might cause a super-spike in the price of oil. The wild card is how the Israelis might react to the threat of a nuclear Iran, if they conclude that the US is now much less likely to do something about this issue.



II) ECONOMICS & CHIPS: Yesterday, and almost every day, I am asked about the risks to my optimistic economic outlook for 2007. Other than the wild cards on the geopolitical front, there is still the house of cards. The jury is still out on whether the housing recession will evolve into an economy-wide recession next year. I don't think it will, but it remains an issue for stock investors. On Monday, I spoke on a panel of economists at an asset-backed securities conference in Orlando. One of the other speakers was Douglas Duncan, the Chief Economist at the Mortgage Bankers Association. He observed that 34% of American homeowners have no mortgage debt and that 48% have fixed-rate mortgages. That leaves 18% with adjustable-rate mortgages, of which 6 percentage points are probably subprime. He just doesn't see how these numbers add up to a major calamity for the economy. While the debate goes on about the outlook for the US economy and how the election results might impact the stock market, the latest global economic indicators continue to show a boom out there. Particularly impressive are September's data for worldwide semiconductor sales. They soared to a new record high. They have more than doubled since early 2002, and now exceed the previous record high during October 2000 by almost 15%. This global boom in chip sales has been led by demand in Asia Pacific (excluding Japan). On the other hand, September's orders for semiconductor equipment remained at about half the 2000 peak pace, and have been slipping in recent months. This suggests that productivity in the semiconductor industry is very strong. It also suggests that the industry has become increasingly commoditized. That's good for consumers of technology gadgets that are crammed with semiconductors, but not so good for the earnings of semiconductor producers.
* Global Semiconductor Sales: More upside for global chip sales? Yes. Global semiconductor sales rose 9.3% y/y to another new high of $21.4 billion during the month of September. According to the Semiconductor Industry Association (SIA), growth continues to be strong across a broad range of end markets and geographic regions, led by Asia Pacific. SIA reports PC manufacturers are now producing systems designed for the new Windows Vista operating system, which is contributing to strong demand for DRAMs.
* Semiconductor Equipment Book-To-Bill: What's the latest news from the Semiconductor Equipment industry? Bookings and billings turn down as the current equipment cycle turns down. According to SEMI, "Overall performance for the year, however, remains on track to become the second strongest year for equipment spending in the semiconductor industry." Despite the strong showing this year, the industry's stock price index remains weak, and industry earnings have flattened out.
* Semiconductors & Capacity Utilization: Is rising semiconductor capacity utilization rate good news for Semiconductors and Semiconductor Equipment? It should be, but forward earnings momentum is lackluster for both. Semiconductor industry's utilization rate rose to 78.2% in September from 77.4% in August, but that is still down from a cyclical peak of 83.1% in late 2004. These two industries account for 17% of S&P 500 Tech's market capitalization. We might downgrade them if earnings momentum and NERI remain weak. US semiconductor firms are facing greater competition both globally and from one another, so forward earnings are volatile.
* S&P 500 Semiconductors: What's holding back M-rated Semiconductors? Forward earnings has been weak all year. The industry rose 6.2% in Q3, but is still the 11th worst S&P 500 performer ytd with an 8.5% decline. Earnings momentum and NERI are both negative now. They typically stayed negative for about 12 straight months in the past and probably won't improve anytime soon. P/E edged down to 18.7 in October and is at a steep 28% premium to the market. We're not loading up on chips for now.
* S&P 500 Semiconductor Equipment: Is there more upside for M-rated Semiconductor Equipment after Q3's 7.6% jump? Probably, though we downgraded it on June 16 because forward earnings momentum was looking weak. It edged up slightly in October. NERI has weakened during the past three months. Bookings seem to have peaked in July. P/E of 16.3 up from July's two-year low, but the P/E typically rises as earnings weaken.



III) STRATEGY: The good news is the old news. Q3 earnings were much stronger than analysts expected for the S&P 500. The bad news is that they are slashing their estimates for Q4. This corroborates my forecast of a significant slowdown in earnings growth through the first half of 2007. However, I don't expect a profits recession next year, and I do expect a P/E-led rally. In the short-run, the bullish camp is getting a bit crowded. So locking in some profits for the year might be a good idea. However, early next year, seasonal inflows into equity mutual funds should be particularly strong.
* S&P 500 Forward Earnings & Valuation: What did Q3 S&P 500 earnings do last week? It continued to soar! The blended estimate/actual growth rate jumped to 19.2% y/y last week from 13.9% at the start of the earnings season. However, the Q4 forecast continued to weaken. It fell to 8.8% y/y last week from 12.0% at the end of September. Forward earnings at a record high again for LargeCaps, but still below recent record highs for MidCaps and SmallCaps. Earnings momentum stable for LargeCaps last week, but continued to fall for MidCaps and SmallCaps. Valuation slipped for all three indexes, but still on the recovery path back to pre-Q2 sell-off levels.
* Bull/Bear Ratio: The Bull/Bear Ratio climbed to a 9-month high of 2.00 this week, with both bullish and bearish sentiment down. Bullish sentiment posted its first decline since late August, falling to 52.1% from last week's 9-month high of 53.7%. Bearish sentiment dropped further below 30%, falling to a 6-month low of 26.0%. Bearish sentiment was as high as 37.1% in early August. Movers out of both camps went to the correction camp, which rose to 21.9% from 17.9%.