Yardeni:
On earnings, following up on Ed Keon's view from the sectors and the earnings so far, looking at 2004 expectations and 2003 expectations from the swiggle analysis, combining them on a time-weighted average to get the forward earnings, we see there are definite signs that the forward earnings funk we have been in for about a year may be ending. We are starting to see some upturns in forward earnings and that is because 2004 has started to tick up a little bit and the 2003 looks stable, when averaged out together the forward earnings are rising above $55 a share. We are in the optimistic camp and do believe that forward earnings are going to improve. When looking at the same analysis, 2001 is very reminiscent with what happened in 1991, what happened with earnings estimates in 2002 is reminiscent to 1992 and 1993 is a good blue print for this year. In 1993, as we got further into the year, earnings expectations stopped falling and started to level out. We believe that 2004 should be a year like 1994, that is the analysts are not going to be far off on the earnings picture, and in our thinking by year end they will be looking at $60 a share in earnings on the S&P, and that will be the relevant number for thinking about the market next year. In mid-caps, the earnings expectations are also trending higher, while small-caps are barely moving higher. The weekly data is good indicator of how the analysts are incorporating the news as they are getting it and the S&P looks better.
On the credit spreads, the credit spreads have been moving lower, yet it is still to high. We would like to see the credit spreads between corporates and Treasurys move lower to below 200 basis points. One of the reasons for the outlook is the industrial commodity prices are inversely correlated with the credit spreads and we think these industrial commodity prices have held up remarkably well over the past several weeks given the uncertainty of war, then the war and now concerns about whether the economy will lift. There have been no signs of improvement in the labor markets, but again we would point out that the unemployment data that has been out is also similar to the patterns of 1991, 1992, and 1993. As businesses confidence comes back this should stabilize.
From:
prudential.com |
