Tuesday, February 2, 2010

The Stock Market

January was obviously not a good month for the stock market, with the S&P dropping by -3.6%. According to what I read, a poor stock market performance in January is typically a poor harbinger of what lies in store for the rest of the year.

But here's a couple of hopeful observations. First, the stock market had a poor start last year (to say the least!) and wound up the year with solid gains. And, second, I read this report from Nigel Tupper, who is a quantitative analyst with Merrill Lynch. Here's the highlights, with the full report linked below:

Earnings Revision Ratio improves significantly in Jan
The Global Earnings Revision Ratio improved significantly in January from 1.20 to 1.48 having moderated in December (cover chart). The high Ratio indicates that almost three earnings estimates are being raised for every two estimates that are lowered. If the period 2004-07 is any guide, the global earnings environment is improving whenever the Ratio is above 1.0.

Earnings expectations improving the most in the USA
The one-month Earnings Revision Ratio improved in all regions in January. The Ratio in the USA increased significantly from 1.26 to 1.61 and is now higher than any other region. The Asia Pacific ex-Japan Earnings Revision Ratio was also high at 1.55 (up from 1.36). The Ratio improved to 1.47 in Emerging Markets, 1.45 in Europe and 1.33 in Japan.