For the second time since the bull market began, profits are surging and stocks are falling, Bloomberg reported Monday.
Bloomberg compiled estimates from over 9,000 analysts and found Standard & Poor’s 500 Index companies will earn 18% more in 2011 than they did last year. Stocks are the cheapest they’ve been in 26 years, according to the report, and even if companies posted no growth, price-earnings ratios would be lower than on 96% of days in the past two decades.
Earnings could rise to over $99 in 2011, up from previous forecasts of $95 and $98 earlier this year.
There are several factors at play in the decline of market gains: rising interest rates in China, worries over Greece defaulting and the end of the $600 billion stimulus program implemented by the Fed.
“The market is not willing to pay for future growth,” Nigel Holland of London-based Legal & General Group Plc told Bloomberg. “Provided there is better data, it will stabilize,” he said. “The market probably has room to rise 10 percent by year-end.”
In the last week, the S&P gained less than 0.1%. On Tuesday, the S&P closed up 1.34%, at 1,295.52.
This is the second longest decline for the S&P since the bull market began, Bloomberg reports, and has coincided with a predicted decline in GDP for 2011. The longest decline occurred in 2010 and lasted for 49 days between April and July when the market fell 16%.
However, Bloomberg notes, declines of more than 5% are common during bull markets: During the nine rallies between 1962 and 2007, the S&P 500 fell that much an average of seven times. The current bull market has seen nine declines of over 5%.