Some market cheerleaders are pointing to price-to-earnings multiples as an indicator that stocks are cheap. At the very least they should mention that earnings expectations are still higher than the reality will deliver. If you look at the guidance given in many of the earnings reports we've seen this season, especially in the tech sector, forward multiples are not low enough to overcome investor skepticism. That means we have not seen the final lows of this bear market.
The trick, of course, is to anticipate the inflection point. Right now, I don't see it. But what do I know, I'd have bet on the Germans in 1940 (based on a tip from Joe Kennedy). Here's FT Alphaville:
It Can Get WorseGranted, this was written by UBS’s Jeffrey Palma on Oct. 21, and things have deteriorated since then....
One problem for the stock market right now is that estimates of corporate earnings are falling almost as fast as share prices.
That means that even as stocks lose value, they are not really getting cheaper — at least in the way that their valuation is most commonly measured (which is relative to the earnings of the underlying companies). Just to keep from getting more expensive, stocks have had to fall.
After today’s drop, the Standard & Poor 500-stock index has dropped 14.2 percent since Oct. 24, for instance. But S.&P.’s estimates for the net earnings of the 500 companies in its index has dropped 13.9 percent over that same four-week span. (Thanks to Howard Silverblatt of S.&P. for these numbers. They are for the year ending June 30, 2009.) S.&P. has had to lower its earnings estimates because the deteriorating economy is causing companies to lower their own estimates....MORE
A couple other posts that touch on the same issue:
Oct. 24: How low are P/E ratios?
Oct 25: The Mathematics of Losing Money