On Friday, Merrill Lynch’s David Rosenberg notes that with "90% of the companies reporting, third-quarter earnings per
share dropped 8.5% from the third quarter last year."
As we noted last Monday, S&P 500 Profit Flips Negative for Q3.
Here’s an excerpt via Barron’s Alan Abelson:
"With the tally now
encompassing 90% of the companies reporting, third-quarter earnings per
share dropped 8.5% from the third quarter last year. A bad enough
showing in itself, it’s even worse when compared with a 9.6% gain in
the second quarter over the corresponding ’06 period and 11.6% when the
whole world was smiling a year ago. It’s the worst performance since
that dispirited fourth quarter of 2001, hard on the heels of 9/11.
It won’t shock you, we’re sure, to learn that
financials took a real profits pummeling (down 33% from the
year-earlier total) topped (if that’s the word) only by the shares of
companies that cater to consumers with more than a dollop of
discretionary income to spend, which were off 39%.
David stresses that profits drive the business cycle
— capital spending and employment feed off them. And he sighs: "It has
always been thus." Hence, he’s ineluctably forced to the conclusion
that a recession in the economy "is either here or no more than two
quarters away." And he goes on to note the last two times corporate
earnings skidded to a comparable extent into negative terrain were in
the fourth quarters of 1989 and 2000 (both instances, we might add,
proved the beginnings or a prelude to something ugly in the stock
market as well as the overall economy).
There’s a tendency, David notes, especially
prevalent among the considerable number of die-hard optimists, "to
strip financial-related earnings out of the pie" because financials now
account for 30% of corporate profits and crow about how good everything
else is. Well, everything else isn’t so hot and, as David observes,
"stripping out financials is like stripping out California, Florida,
New York and Texas from GDP."
Indeed . . .
Skeleton at the Feast
Barron’s NOVEMBER 26, 2007
UP AND DOWN WALL STREET