With many benchmarks of US stock markets at record highs, conventional wisdom tells us that this must have been about beating earnings, perhaps also at record levels.
The Dow Jones Industrials (top pane) has clearly passed the 2007 threshold, while the S&P 500 (lower pane) has marginally breached through same levels. (chart from Bigcharts.com)
But conventional wisdom seems out-of-place or has been rendered irrelevant in today’s era of central banking wizardry.
The percentage of companies beating earnings (top pane) and revenues (bottom pane) expectations continues to be in a downtrend (chart from Bespoke Invest).
And such dynamics hasn’t been a short term anomaly, rather these has been THE trend since 2006 (green lines). The decline in the % of companies beating earnings and revenue estimates has been worsening since 2010 (red lines).
This deterioration in earnings and revenues can even be seen from a different perspective, or relative to the historical averages.
They show the same results.
The % of companies that missed estimates have jumped (left window top). Average earnings surprises has materially declined (top right window) as average revenue surprises turned negative (bottom window). All charts above from Zero Hedge
So it seems that a speculative frenzy has been in motion in US equity markets. The above also reveals of the parallel universe or of the flagrant disconnect between fundamentals and market prices.
This suggests that the orthodox wisdom where “corporate fundamentals” drive market prices seems to have been falsified by the actions of central bankers.
I mentioned above that the % of companies beating earnings and revenue estimates has been worsening since 2010, this seems to coincide with the re-acceleration of the Fed’s QE program from QE 2.0 in 2010 (chart from the Cleveland Federal Reserve).
And again this exhibits the substantial influence of central bankers or the US Federal Reserve in determining the direction of stock markets.
This also reminds me of the stock markets of two Latin American nations, Argentina (Merval-left) and Venezuela (IBVC-right), where both economies have been experiencing hyperinflation but in different degrees.
Skyrocketing stock markets for these countries are signs of monetary disorder or a blossoming of a currency crises rather than an economic boom or a credit bubble. (charts from Bloomberg).
I am not suggesting that US markets have been suffering from the same bout of hyperinflation, rather I am saying that the record rise in US stock markets are most likely symptoms of monetary distress.
It pays to recognize the difference.
1 comment:
I comment that yes indeed there is a disconnect between US Stock Market performance and falling estimates of corporate estimates. The record US Stock Market performance, is not monetary distress, it is the result of monetary excesses of the world central banks.
The record US Stock Market Performance VTI, is due to monetary inflation, coming from world central banks’ monetary policies of easing and ZIRP, and the ongoing pursuit of the highest yield bearing investments, together with a high Euro, and a low Yen, resulting in a very strong Euro Yen Currency Carry Trade, EUR/JPY, is responsible for driving up the Technical Leaders, PDP, seen in this Finviz Screener ....... http://tinyurl.com/b6j7pdu ... these include AMGN, RF, DIS, TWX, DISH, GGP, ACAS, HAL, XOM, PPG, DD, ADSK, CSCO, QCOM, IP, PKG, LVS, BA, JPM, BAC, TSM, ETN, GM, MMM, MAS, KUB, HD, WHR, MON, SWY, PFE, VZ, WOR, ADS, KMX, V, ITW, MMP, BLK, MHK, NKE, SBUX, DXPE, POOL, AMZN, MMS, PG, DTE..
The record performance of the US Stock Market is Jesus Christ, working in dispensation, Ehpesians 1:10, to fully complete Liberalism’s credit expansion. Another word for credit is trust. Jesus Christ is developing and maintaining absolute and full trust in the monetary authority of the world central bankers to continue Global ZIRP, which has greatly rewarded ongoing investment speculation; in particular speculation in the Technical Leaders, PDP, in Biotechnology, IBB, in Casinos and Resorts, BJK, in high yielding Premium REITS, KBWY, and in Telecom Stocks, IST. The global investment crack up boom is based upon full leverage coming from the two levers of investment growth, these being the expansion of credit, AGG, and JNK, and currency carry trade investment such, as the Euro Yen Currency Carry Trade, EUR/JPY. As long as investors keep buying Junk, JNK, and keep the Yen, FXY, low relative to the Euro, FXE, then there will be still some more up in Nation Invesment, EFA, and in Small Cap Nation Investment, IFSM.
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