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To: Johnny Canuck who wrote (47505)	2/14/2012 10:07:28 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 70346

..Stocks vs. Earnings: A Surprising Inverse Correlation ..By Matt Nesto We talk a lot about inverse correlations in the market: how oil or gold tend to go up when the dollar goes down, how consumer confidence declines when gasoline prices or unemployment go up. I thought I had seen them all, that is, until Factset earnings analyst John Butters sent out an inverse relationship chart, showing the decline in first quarter earnings growth expectations over the past three months versus the rise in the S&P 500. Factset Even an uber-bull would have to concede that under normal conditions, those two lines should move together and that 0% earnings growth is hardly the fuel needed to drive stocks higher. Yet Butters points out that this is the 17th time in the past 40 quarters that such an opposite - or inverse - move has occurred. As much as this diverging phenomenon is remarkable, it isn't conclusive in suggesting that a correction is near. That said, it should still be heeded and investors would be wise to at least take note and prepare for the eventuality of a more normalized growth rate or price change for the market. "Earnings matter a lot" says Jeff Kleintop, chief market strategist at LPL Financial in reaction to this factoid. "I think the earnings growth picture is set to weaken quite a bit." Officially, Kleintop is looking for about 7% growth this year for S&P 500 earnings, with most of that coming in the 2nd half. Even if Q1 estimates stay flat or continue to weaken, there are at least 3 things that could distort, or at least defer, a reckoning. First, investor and consumer confidence could rise, putting a greater value on future profits rather than those right ahead of us. Second, conditions in other parts of the world could worsen, thereby boosting stocks here as our domestic market looks ''relatively'' more attractive. And finally, the lower the bar (earnings estimates) goes, the easier it is to get over it. "No, it's not good," Kleintop says, pointing out that even today, he's concerned that fewer companies have been able to beat estimates than in the past few years. In the meantime, he like many of us, he won't be surprised to see ''a little pullback" and some increased volatility return after the hottest start to a new year in more than a decade. He's focusing on companies that do business in emerging markets that can deliver profit growth, including industrials and technology, and if they pay a dividend too, all the better. finance.yahoo.com