Here is a look at the aggregate earnings performance of the companies comprising the S & P 500 over the course of Q4:
(From the Associated Press): "NEW YORK – The companies that make up the Standard & Poor's 500 are on track to post a collective quarterly loss for the first time — a sign corporate America was battered even harder than expected by the economy.
The dismal earnings reports already handed in by three-quarters of the S&P companies are compelling Wall Street analysts to tone down expectations for this year and push back predictions for when the economy will recover.
"I don't know of very many people who believe that there is going to be much recovery at all in 2009," said Jennifer Ellison, a principal at investment firm Bingham, Osborn & Scarborough.
The deepest wounds are showing up on banks, weighed down by the bad debt on their books. But the pain hardly stops there. Among major industries, only consumer staples, utilities and health care have been able to maintain or add to profits.
"We know how bad the tail end of the third quarter got, and it really fell off a cliff through the fourth quarter," said Bill Stone, chief investment strategist at PNC Wealth Management."
Graphic courtesy of the Associated Press
Graphic courtesy of Wikinvest.com
Needless to say we're entering some rather unchartered territory as this trend is likely to last through at least Q3 if not further, and some of the long-held assumptions about the market will be challenged over the next 12-18 months.
The thing I caution investors to avoid is buying stocks simply because they're mathematically cheap, as opposed to ones that are truly undervalued. There is a temptation to snap stocks of former high-flyers once we see them get down under $10, $5, $3, etc, because they seem "cheap" and we assume that sooner or later they'll return to their old price levels. However the thing to keep in mind is: is the stock trading for $1.80 due to its current financial state vs. stocks that are trading really low due to being associated with a bad sector, the downturn in the market in general, etc, etc.
All that being said I'll probably start going back into S & P 500 index funds towards the latter part of this year, because while I don't necessarily think that the S & P 500 will hit bottom towards that time I do believe that it will be "cheap enough" to give me a solid margin of safety.
You can read more here.
A chart looking at the performance of the S & P 500 from January '07 through today follows below:
View the full .SPX-E chart at Wikinvest
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
