Kudos to CNBC for their guest selection this morn:
My colleague Tony Dwyer was on, discussing his expectations for 12% or so growth. Tony notes that this makes him an outlier — one of the more bullish strategists on Wall Street, which is somewhat ironic. He and I have discussed the 2nd derivative of earnings — the change in year over year SPX earnings growth % — which he disses, but TD otherwise did a fine job.
Later in the show, Mark Hulbert came on, to discuss (by coincidence or clever counter-programming?) year over year SPX earnings growth %.
Why? The academics look to weak earnings as an eventual spur to interest rate cuts; I prefer to think in terms of sentiment:
"The key to this lies with psychology: Perception versus reality. When year-over-year earnings % improves from awful to merely bad, the headlines [will still be] extremely negative. But this is the earliest part of any recovery, and no one — at least, almost no one — [will have yet] recognized the changing character of the economic cycle. Hence, even though the mood is palpably morose, that’s when you gotta buy ’em: Not only when everyone hates ’em, but when we see quantititative proof of the cycle turning."
I still think that’s the right explanation; But if you go back and test the quant data (as NDR did), the reason doesn’t really matter. Consider interest rate cuts as a reflection of a very specific sentiment — the Fed’s worries — which may be the ultimate sentiment indicator in the market.