Profit forecasts for 2009 continue to be cut in large numbers. For every positive revision , there have been 6 cuts. The ratio is roughly the same whether the sample group is the S&P 500 or the larger Zacks Rank universe, which contains about 4400 stocks.
There is also quite a bit of difference in what analysts are forecasting. Last night, I calculated projected earnings growth for the S&P 500 based on the lowest, consensus and highest estimates. Here are the results based on a bottom-up calculation.
- Lowest estimate: $71.60 (-5.8%)
- Consensus estimate: $91.14 (+9.5%)
- Highest estimate: $111.14 (+20.7%)
The bottom-up estimate is calculated by using the individual earnings estimates for each company and then applying an index-weight to it. The lowest estimate uses the lowest profit forecast for each company. The highest estimate uses the highest forecast for each company.
It is possible that some of the highest forecasts are close to 90 days old, meaning that analysts have yet to adjust them for the credit crunch.
The top-down forecasts, which are consensus estimates made for the S&P 500 as a whole, show a tighter range.
- Lowest estimate: $75.20 (+1.6%)
- Consensus estimate: $93.73 (+6.9%)
- Highest estimate: $108.00 (+7.5%)
As I have said previously, these profit forecasts need to be taken with grain of salt. Brokerage analysts are doing their best to make educated guesses, but the assumptions used in their models could end up being very wrong. It's not the analysts' fault, but rather just current reality.
Credit Markets
The credit freeze is continuing to show signs of thawing, a positive.
The 3-month London-Interbank Offered Rate (aka "LIBOR") is down to 2.29% as of Friday morning. At the height of the credit crunch, the rate had reached 4.82%. This rate is used as the basis for many loan terms, including the interest rate on your and my credit cards.
The TED Spread, which is the difference between the LIBOR rate and 3-month treasury bill rates, has also narrowed. Friday's spread of 2% is well below the recent peak of 3.66%.
Higher TED spreads imply greater credit risk. Prior to the current credit crunch, the TED spread was 0.11%.
The Election and the Our Portfolios
During the campaign, President-Elect Obama said that healthcare will be one his top priorities.
