S&P 500 Index - Xource: Bloomberg
On October 4, 2010, a Bloomberg headline read “S&P 500 Profits Cut for First Time in Year by Analyst”. (see here). However, in the body of the article, the following appears:
“While estimates for U.S. corporate profit fell last quarter, they still indicate that firms in the S&P 500 will report record earnings in 2011. The equity benchmark is valued at 12 times projected income for 2011, according to data compiled by Bloomberg. That’s the cheapest level since 1988, excluding October 2008 to March 2009 after New York-based Lehman’s bankruptcy, relative to reported profit from the past 12 months.”
While the headline would probably lead the average reader to conclude that stock prices are likely to fall, the excerpted paragraph would probably lead to the exact opposite conclusion. My point of view is that, while the magnitude of earnings growth may be in debate, it is broadly anticipated that US corporate profits will grow and share valuations don’t adequately reflect that expected growth.
