Earnings

In this business, it is often best to conveniently forget what was said in the past. But unfortunately, when the opinions are written down and published, this does not always work. At any rate, this publication has a sometimes embarrassing commitment to full disclosure. So again, we will include our old (1986) crystal ball gazing right along with this year’s predictions.

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In October, the market flip flopped with big growth stocks leading and cyclicals and basics mostly lagging. We continue to think underlying market leadership is “growth,” but we are no longer so sure. We have taken a hard look at the “cyclical” argument, including two of our own proprietary earnings momentum tools. From an earnings standpoint, 1987 might be a better earnings year than most expect.

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A number of clients have requested historical data regarding earnings, dividends and book values for the stock market indices. This section provides information, going as far back as 1910.

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The current 1974-1986 secular bull market period is similar to the 1949-1962 period (not 1921-29) in a number of ways. In this study, we compare earnings and dividend trends, as well as price action. If the 1949-1962 script is playing over again, the P/E expansion may be about over, with a non-economic bear market due.

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Earnings estimates for the market as a whole are coming down, but not nearly far enough. Clearly the first quarter will be below expectations.

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The Major Trend Index remains in “neutral,” but it appears the correction lows may have been seen around 1120, DJIA. Our “Early Warning” work remains constructive.

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Comments on current farm conditions, inflation measures, DJIA 1982 earnings calculations, “Whoops” bonds, California script, and Minnesota’s new oil field.

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