Corporate Profits

Earnings performance from mid-2007 through the end of 2008
represented one of the worst in US history, including a never
before seen loss of $.09 per share for the SP 500 in the final
quarter. The dramatic bear market was fully sensible given the
profound collapse of profitability.

Top down earnings indicators have bottomed over the past 6
months and almost all are on the rise. SP net per share was about
$10.00 in Q 1 ' 09 and the indicators presently suggest it will rise
sequentially through Q 4 '09. Viewed sequentially, sales have yet
to rise, but profitability has improved reflecting lower cost structures
for many companies. Some of this improvement has been
"manufactured" via the taking of massive inventory, termination
and closing losses in Q 4 '08. In my book, the market is now pricing
in 12 month earning power of $50 - 55 a share. This a humble
number when you consider that earning power based on the
past 23 years' range is a midpoint of $92 per share. Also of note is
that in the spring of 2008, the consensus for SP 500 eps in 2009
was $112. The recent pause in the stock market's progress is a
direct reflection of caution concerning earnings recovery prospects.

The strength of the leading economic indicator sets I follow suggests
that at some point over the second half of the year, investors may
raise the consensus for 12 month earning power from the current
$50 - 55 to $60 - 65.

Viewed on a yr/yr basis, earnings are not now expected to top the
prior year until late in 2009.