The Market Ticker
Commentary on The Capital Markets- Category [Earnings]

Amusing, says I.

One word describes the bottom line on the bottom line for second-quarter earnings season, and the top line, and the middle lines for that matter: down. With about 93% of the S&P 500 companies having reported results, profit growth was down in the second quarter, for the third straight quarter. Sales fell, too. So did operating margins.

When the final 10% chimes in, S&P 500 profits for the second quarter are expected to be about $22.85 a share, going by standard accounting, down an unsightly 15.8% from the second quarter of 2014, according to data from S&P Dow Jones Indices. It’s the first outright decline since the third quarter of 2012.

On a 12 month basis that would be about $91, which makes the SPX multiple 23x.

That's quite high.... and the only way that works out is if somehow this is an "anomaly."

It's not.

Reality is that the earnings picture is rather cloudy and we're flying at 12,000', which gives rise to the potential to hit a cumulo-granite cloud without warning.

Should this scare you?  Yes, for one reason: current market valuations are high absent further acceleration in earnings, and if the last quarter just reported is not transitory but rather normal, while policy rates rise toward normal, it suggests that the market is overvalued by as much as 35%.

You might want to do the math on where the SPX trades (and the DOW) if that proves up.

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