Daily Gains Letter (www.DailyGainsLetter.com), an e-letter of Lombardi Publishing Corporation, a 27-year-old consumer publisher that has served over one million customers in 141 countries, warns that gains on key stock market indices do not accurately reflect troubling trends, which could cause them to slide lower; generating losses in investors’ portfolios.
“The S&P 500 has been performing well all year, and is up more than 25% since the beginning of 2013. During the third quarter, the S&P 500 gained 4.8%, and is up 6.2% so far in the fourth quarter,” says financial analyst Moe Zulfiqar. “While these are solid numbers, it’s important to look below the surface.”
By the end of the first week of November, 446 companies on the S&P 500 had reported their corporate earnings; 73% of them were able to show earnings above estimates. Overall, the corporate earnings growth rate was 3.4%. (Source: “Earnings Insight,” FactSet web site, November 8, 2013; http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_11.8.13/at_download/file.)
“These numbers certainly sound good, but looking a little deeper into the details shows that the numbers don’t tell the full story,” Zulfiqar adds. “While nearly three-quarters, or 73%, of S&P 500 companies that have reported results beat corporate earnings estimates, barely half, or 52%, were able to beat their estimated revenue.”
Companies on the key stock indices are showing great corporate earnings, Zulfiqar notes, but are missing on revenues. This suggests their profits aren’t really coming from their core business, but from elsewhere, and should be a sign of great concern.
“In the short run, key stock indices look to have momentum to the upside, and we are seeing too much optimism,” he concludes. “Things may continue to go that way, but based on poor fundamentals, they can turn very quickly as well.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation and Daily Gains Letter, visit www.lombardipublishing.com.
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