Global Outlook 2009: Part 1

Part 1 Birinyi Associates' Global Outlook for 2009 details forecasts and estimates for US markets and stocks, specifically the S&P 500, its members, and their sectors and groups.  Comparing bottoms up estimates to the top-down forecasts issued by market strategists we find that most market commentators are generally uncertain about the year ahead.  On the top down side, strategists expect the S&P 500 to gain 20% during the year but EPS for the index are expected to decline 20%.  The current bottoms up forecast points towards a similar 20% gain for stocks, but a more modest decline in EPS of 1.7%.

Below we highlight what is probably more important than earnings the number itself: the trend.

S&P 500 EPS for 2008 & 2009:

In the last two weeks negative revisions have pushed 2009 expectations below those of 2008, and the negative momentum which picked up in October-08 seems to continue.  2009 expectations - on a bottoms up basis - have been revised down 25% over the last three months.  As long as negative momentum continues for EPS forecasts the market will not be able to sustain gains.

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• Birinyi Associates' market outlook and 2009 strategy.
• Detailed bottoms up impact analysis based on S&P 500 member price targets.
• Bottoms up versus top down earnings estimates for sectors and groups.
• Recommended sector weightings and stock recommendations by major brokerages (one sector stands out as the most recommended for 2009).
• Group earnings and earnings impact on sectors.
• International markets: the bright spots and what to avoid.

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Comments

[will rahal]

You are currently projecting a P/E ratio of 7 for the Russell-2000.
There must be a mistake since recently the number was 27.
This would imply earnings to be 3x peak earnings from last year.

[Cleve]

Will,
I'm not sure what you are reading but this post relates to the S&P 500. Based on the $75 EPS estimate for 2009 the projected P/E is about 11.3 which is reasonable considering the trailing P/E is 15.64.

[will rahal]

The S&P is OK but not the Russell-2000.
Don't you calculate P/Es for the indeces shown by the WSJ(see link below)?

It uses Birinyi Associates as source.

http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=mdc_h_usshl

[will rahal]

The S&P is OK but not the Russell-2000.
Don't you calculate P/Es for the indeces shown by the WSJ(see link below)?

It uses Birinyi Associates as source.

http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=mdc_h_usshl

[Birinyi]

Will,
I see what you are looking at; it's possible that the P/Es you are using do not include any negative earnings. Often they are simply not included for an index's EPS; but we believe that they should be. Also earnings are on an "as reported basis" which means write-downs and other items are included. Thus the trailing P/E can sometimes be much different than the forward P/E.

[Will Rahal]

Last year the peak EPS for the Rut-2000 was around $20+(this is your calculation which correctly includes neagtive EPS).
You are now showing an ESTIMATED P/E of 7 which implies an EPS of $60+ This is too large(3x) a recover in EPS.

[Will Rahal]

Cleve,
I noticed today that the P/E for the Russell-2000 jumped from $7 to $16.
What did you do differently?

[Birinyi]

Will,
I'm not sure where the mix up was, I don't report that number to the WSJ but I have double checked and the current P/E for the Russell 2000 matches what we have. We have not changed our calculation.

[Will Rahal]

Thank you.