Here’s a little “tip” or “tidbit” that I learned today watching BNN (Canada’s CNBC). Generally speaking, company earnings lag the markets by about one year. This means that since experts are generally agreeing now that November 20, 2008 represented the overall market bottom (unless, of course, we retest that bottom), that it will take until about November 2009 in order to see the changes fully worked in to company earnings.
What that means is: we can expect there to still be a few quarters of missing expectations or worse news in the quarterly earnings releases. There is also the ongoing possibility that more dividends may still be cut as companies continue to price in the effects of the market.
The market moves (up or down) in advance of the actual economy because, I gather, in many ways it is the sum total of everyone’s perception (ill-informed or expert) on what the economy is about to do in the future.
So you can use this as a guideline about what the economy will look like in about one year or so. Right now, markets are saying that it’s going to take until the beginning of 2010 to see much substantial recovery. It’s also good news insofar that the markets haven’t got much worse since the November lows, which means there might finally be a light at the end of the tunnel. At least this is how I take the information.
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