dailyreckoning.com.au / By Greg Canavan / September 13th, 2013
It was a relatively quiet day on the stock market. The S&P500 backed off a little, but it’s had a pretty good run lately. We’ve been telling our subscribers that the market is set up for either a meltdown or a melt-up. We’re sitting in the meltdown camp.
The S&P500′s rally back towards the July/August highs appears to lack conviction and momentum. It’s pretty much accepted on Wall Street that the Federal Reserve will start its ‘tapering’ campaign next week, so this is probably giving stock market bulls pause for thought. That is, if QE was largely responsible for the market’s five year, 150% price rally, then maybe it’s a bit much to expect more of the same with less QE.
Keep in mind that corporate earnings in the US are no longer growing. Actually they haven’t grown in a while. According to this table, sourced from S&P data, the last quarter of positive earnings growth for S&P500 companies was June 2012, where it registered an annualised growth rate of 4.83%.
Since then earnings growth has stalled, and for the latest data (to March 2013) annualised earnings actually declined at a 0.95% rate.
So since June 2012, the market has relied on ‘multiple expansion’ to keep heading higher. That is, the price paid for those stagnant earnings must increase to keep stock markets elevated. And when we look at this table, that’s exactly what we see.