Companies continue to lower Q3 guidance

This is in line with my yearly forecast point and an important trading aspect to take in to account, basically, on index level, there is no growth. At best there is 0-5% growth even next year. That said, there is not a great danger to a traditional cyclical business downturn either. So what we have is this low growth, new normal, whatever, stuff going on for some time to come.

This implies an investor need to pay attention to

a) sentiment swings.
b) p/e-levels (base case interval 11-15).
c) central banks, the monetary base and price equities in terms of gold, oil etc.

So far, 103 companies in the index have provided guidance for the third quarter. Of those, 80% have guided below Wall Street consensus estimates, according to John Butters, senior earnings analyst at FactSet. That’s the most negative outlook since FactSet began tracking the figures in the first quarter of 2006.

Adding insult to injury, S&P 500 companies are projected to see earnings drop year-over-year for the first time in 12 quarters. Third-quarter earnings are currently estimated to drop by 2.7% for the S&P 500 as a whole, the worst forecast growth rate over the past 12 quarters, Butters added. At the beginning of the quarter, analysts had been forecasting earnings growth of 1.9%.

http://blogs.marketwatch.com/thetell/2012/09/21/many-sp-500-companies-forecasting-third-quarter-misses/

In another recent article, this phenomena is demonstrated by a simple dividend model.

The model, at least the variant I will focus on for this column, is breathtakingly simple. It says that the market’s long-term return will be a function of just two things: the current dividend yield and real growth in earnings and dividends.

Since this latter growth rate over the last century has averaged about 1.4%, we can forecast what the market will do over the next decade by simply adding the market’s current dividend yield, the assumed real growth rate of 1.4%, and expected inflation.

These three components today add up to a nominal return of 5.6% annualized, according to Rob Arnott, founder of Research Affiliates, an investment advisory firm — or 3.4% in real terms.

http://www.marketwatch.com/story/stocks-future-return-just-56-annualized-2012-09-21