Things have come apart very quickly as government officials have demonstrated they are in this way over their heads.
Especially as it becomes clear the enormous efforts expended to get the TARP passed will do little if anything to address any of the current woes.
Government, including the Fed, has lost what little credibility it may have had.
While they have the ‘silver bullet’ at hand with fiscal policy, they are reluctant to use it due to deficit myths left over from the gold standard that are no longer applicable.
Note earnings growth has moderated but not yet gone negative, ex financials.
Not reported is that core earnings for financials (ex writeoffs) are probably reasonably strong.
by Juan Aruego
This earnings season is looking ugly and there hasn’t been much talk about which sectors are bringing the pain.
What’s different this quarter is that expectations for everyone are falling.
Until now, the weakness has been concentrated in banks. But this quarter, the consumer discretionary sector is getting crushed. Estimates have plunged from +15% on July 1st to -9% today.
Other depressing factoids:
- Four sectors are now expected to see earnings fall. Together they make up 27% of all earnings
- Only one sector, energy, is looking at growth above seven percent. Oh, for the days when double-digit growth was de rigueur.
- Can you believe that just three months ago, analysts thought Q3 financials’ earnings would be nearly unchanged from last year? How times have changed.
Amazingly, the ex-financials growth rate is still in the double digits, but it has fallen from 16.7% on July 1st to 11.3% now. As good as that sounds, excluding financials from the overall number is starting to feel a lot like paying attention to core CPI because it’s not as bad as overall CPI… especially since most of the upward drive is coming from the energy sector. Pull out the energy sector and the “growth” consensus plunges to -14.7%.
Here are all the numbers for you earnings wonks out there:
Q3 2008 Earnings Growth Estimates
Consumer Discretionary -9% 15% Consumer Staples -1% 1% Energy 53% 58% Financials -67% -4% Health Care 6% 8% Industrials 3% 6% Materials 5% 11% Information Technology 7% 12% Telecomm. Services -5% -4% Utilities 3% 7% S&P 500 Overall -4.3% 12.6% Without Energy Firms -14.7% 4.7% Without Financials 11.3% 16.7%
Special thanks to Thomson Reuters and its earnings gurus for the data to back up this story.