Confidence plunges – stocks soar

No, it doesn’t make sense to me either.  In a report from the Conference Board today, consumer confidence set a record low this month.  It plunged to 25 from a revised (lower) January number of 37.4.  That’s an all time record.  And yet stocks soared today, with the DJIA gaining over 236 points, to end the day at 7350.

Why the disconnect?  As I see it, it’s mainly because Bernanke didn’t drop any bombs in his testimony today – he told Wall Street what they wanted to hear.  But fiscal reality will eventually sink in, and stocks will resume their downward trend.  At least that’s my opinion.

Earnings are non-existent.  If you total up the S&P 500 stocks earnings and losses, you’re looking at a negative number – somewhere around -$11/share in losses.  Combine that with record drops in home prices, layoffs, and consumer confidence and I’m curious why people think a recovery is at hand.

Stock prices are driven by earnings in the long run.  And earnings estimates are still too high (project that -$11/share out over a year) in my opinion.  How are companies going to increase their earnings without someone willing to buy more of their products?  The answer is that they can’t.

Don’t be fooled by the surge in stock prices today.  They will come back down, and I think they’ll go even lower than the 12 year lows they set yesterday.  I’m estimating about 5000 on the Dow, and 550 on the S&P 500.  And that’s if the future earnings estimates stay where they are today.  My guess is that they’ll be revised downward, and that there’s a lot more downside left.


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