• Keep your eye on Trends, not Levels when it comes to estimate data
• Earnings expectations are collapsing for both the fourth quarter and 2009
• Almost all areas are affected; Health Care is the only tenuous holdout
• Revisions ratios remain deep in negative territory
• P/Es based on 2009 estimates will prove to be to low as "E" plunges
• Energy was only source of significant growth in the third-quarter, but will fade in the fourth-quarter and 2009
• Financial sector as a whole in the red in the third quarter

Total Net Income Growth

• Total net income of those that have reported is down 18.1% from last year
• Total reported net income so far is $163.8 billion versus $200 billion for same firms last year
• Those firms earned $180.7 billion in the second quarter
• Results exclude non-recurring items, most of which have been negative
• Combining results with expectations, earnings are now expected to be down 17.7%
• Financials down 118.5% and are the worst performer; Consumer Discretionary (-48.4%) is the next worst
• Excluding Financials, earnings are up 8.9%
• Four sectors post lower total earnings than a year ago
• Energy is the only sector to post robust growth, up 57.4%; Consumer Staples next at 11.6%
• Excluding Energy, earnings are down 31.5%
• Excluding both Energy and Financials earnings are down 2.5%
• Expectations for the fourth-quarter dropping to +6.8% from +10.4% a week ago, but still look very optimistic. I expect fourth-quarter earnings to be below year ago
• Negative year-over-year growth in the fourth-quarter now expected for 6 sectors
• Full-year net income in 2009 expected to be 2.8% above 2007 levels, down from 6.3% one week ago. Count me as extremely skeptical, I think earnings in 2009 will likely be lower than in 2008, and far below 2007 levels

Scorecard and Median EPS Growth Rates

• 483 or 96.6% of S&P Companies have reported through Nov 20 close
• Surprise ratio at 1.85, median surprise at 1.90%, both somewhat below normal
• Median EPS growth at 6.90%, surprisingly good given the economic environment
• Energy (52.2%), Health Care (14.2%) and Tech (13.3%) leading
• Financials (-30.0%) doing the worst
• Expected Growth of 12.3% for those left to report
• Health Care and tech leading on surprise front; Telecom and Utilities disappointing

Keep in mind that median growth rates are inherently equally weighted, so the growth rate for Cabot Oil and Gas (COG) is just as significant to the results for the Energy sector as the growth rate for ExxonMobil (XOM).

Share repurchases were still very significant in the fourth quarter of last year and the first quarter of this year (the data is not out yet for the second quarter) and the reduction in share count also boosts EPS growth.

Currency translation gains will be less of a factor this quarter due to the rebound in the dollar. However, the strong overseas demand that the previously very weak dollar stimulated will still prove to be a boost to the earnings of many firms. The delay is because in the third quarter they will be shipping goods ordered previously. Given both the rebound in the dollar, and the very significant economic slowdown abroad, look for the export boom to fade in the fourth quarter and into 2009.

The Zacks Revisions Ratio: 2008

• Revisions ratio for full S&P 500 down to 0.30, from 0.38 last week
• Health Care by far the strongest at 1.12 in response to earnings surprises
• 7 sectors have at least 4 cuts for every increase
• 1 in 6 firms see mean estimate decline by more than 10%
• Ratio of firms with rising to falling mean estimates at 0.31, unchanged
• Total number of revisions (4-week total) falls to 3,819 from 3,995 (-4.4%)
• Increases down to 1,036 from 1,109 (-6.6%), cuts down to 2,783 from 2,886 (-3.6%)
• Past the seasonal peak of total revisions activity

To help gauge the direction of the market, we take note of what analysts are thinking. By tallying their EPS changes, we can determine our "revisions ratio". This ratio simply divides the total number of positive estimate revisions by the total number of estimate cuts. Thus, a high ratio is a bullish indicator and a low ratio is bearish. For the S&P 500 as a whole, a number below 0.80 or above 1.25 is generally significant. With smaller totals for any given sector than the S&P 500 over all, the ratio should be farther away from 1.0 to be truly significant. However, for the sake of consistency, we refer to readings above 1.25 as being in positive territory and below 0.80 as being in negative territory.

The Zacks Revisions Ratio: 2009

• Full S&P 500 2009 revisions ratio at 0.16 up from 0.14 last week
• More than 4 cuts per increase for all 9 sectors; more than 10 per increase in 4 sectors
• Health Care the "best" at a 0.45 reading
• Ratio of rising to falling mean estimates up to 0.14 from 0.13
• Total number of revisions down to 3,596 from 3,822 last week (-5.9%)
• Increases down to 489 from 516 (-5.2%), cuts down to 3,107 from 3,306 (-6.0%)
• Size of cuts horrific: 24.4% of all S&P firms' 2009 estimates down more than 15% over last 4 weeks, 13.2% down more than 25%
• Only thing holding up 2009 expected growth is the decline of 2008 base

Market Cap versus Total Earnings

• S&P 500 P/E for 2008 9.9x and 8.6x for 2009
• Forward Earnings Yield of 11.48% wildly attractive relative to 10 year T-Note of 3.17%
• Real P/E's are higher (and earnings yields lower) since the ?E? is still way to high
• Financials expected to get 4.8% of total S&P earnings in 2008, down from 21.6% in 2007, rebound to 15.3% expected for 2009, currently represent 11.1% of total market cap
• Energy's share expected to grow to 22.6% of total in 2008 from 15.5% in 2007, expected to recede to 17.3% in 2009. Sector represents just 13.2% of the index market cap
• All sectors but Financials and Consumer Discretionary expected to lose earnings share in 2009, although both will be below 2007 shares
• Energy P/E by far the lowest for both 2008 and 2009, at 5.8x and 6.6x, respectively

When making investment decisions, growth should always be looked at in conjunction with how much you are paying for a stock. Thus, it makes sense to look at the total earnings expected for a sector, relative to that sector's total market capitalization. This is basically a variation on looking at the P/E. The P/E's are calculated as the total Market Capitalization of the sector divided by the total expected earnings for the sector.

Neil Malkin contributed significantly to this report.

Data in this report, unless stated otherwise, is through the close on Thursday 11/20/2008