The Age Of The Bear

21/10/2011 at 12:01 pm 1 comment

A couple of months ago we had a look at US economic data and concluded that the market was taking an unequivocally pessimistic view of fundamentals that were actually mixed. To modify the famous characterisation, the glass appeared almost empty rather than half empty. And this week, two stories showed that the current market similarly sees the glass as half empty even when it’s almost full.

First, we had some data out from China on Tuesday. As expected, this showed that GDP growth on the year to the end of September had slowed, to 9.1% from 9.5% the previous quarter. That 9.1%, of course, is comfortably the highest growth rate of any major economy. It’s over twice what’s expected for the world as a whole. In dollar terms it will see China alone account for between a fifth and a quarter of global output growth this year.

At the same time, September data for Chinese industrial production and retail sales beat expectations by showing a modest acceleration over the previous month.

Needless to say, the market took the “GDP slowdown” very bearishly and ignored the rest of the data completely.

The second story, also out on Tuesday, concerned the micro rather than the macro picture: Apple announced its results for the fourth quarter, and earnings per share of $7.05 disappointed relative to expectations of $7.31. The disappointment attracted much comment and dragged on the wider market.

Less attention was paid to the fact that this level of earnings represented a 52% increase on the previous year. Nor did markets care that disappointing earnings have been the exception, not the rule, so far this season: as of yesterday, 117 members of the S&P 500 had reported earnings, and of those, 85 had beaten analysts’ estimates. Twelve month earnings growth for all 117 companies averaged +14.7%.

There are fundamental concerns out there. There will be bad news. But GDP growth of 9%, and earnings growth of 50%, isn’t it.


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1 Comment

  • 1. Taking Stock « The Blog @ Vigilant Financial  |  03/02/2012 at 11:58 am

    […] with Deutsche Bank for example reporting a 76% collapse in profits only yesterday. Last year markets were arguably too pessimistic in the face of mixed economic data and robust corporate earnings growth. Could they be growing too […]

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