Markets are at new highs, but earnings keep slipping

I understand the concept of TINA: "there is no alternative" to investing in U.S. stocks. I get that central banks in Europe and Japan are pumping money into their economies, propping up their stock markets.

What I don't get is the seeming indifference to the notable slide in earnings we have been seeing. Say what you will about quantitative easing, ultimately stocks have to trade at some multiple of earnings that is acceptable to investors, and right now the numbers are coming down much faster than usual for both fourth quarter 2014 and first quarter 2015.

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The simple way to look at this is to look at the annual earnings numbers for the S&P 500. They are still going up, but at a much slower rate than in previous years:

S&P 500 earnings (source: Factset)

  • 2015 (est.): $120
  • 2014 (est.): $117
  • 2013: $108
  • 2012: $103
  • 2011: $95

Remember, a lot of strategists had numbers around $125 for 2014; we are ending far below that.

Bulls can say, "Well, earnings are still set to rise in 2015," but that is pretty thin gruel. The rise, right now, is minuscule, and that 2015 estimate of $120 is very pie in the sky because most of the earnings gains are loaded into the fourth quarter.

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My point: It is very possible that earnings growth could go negative in 2015. How possible? I give it a 50-50 chance. That would be the first time that has happened since 2009.


1) In the realm of retail earnings, Kohl's keeps improving. The retailer beat on the top and bottom line, and same-store sales were up 3.7 percent, as previously reported. 2015 guidance of $4.40 to $4.60 is within consensus of $4.55, with same-store sales guidance up 1.5 to 2.5 percent.

"The sales strength was broad as all lines of business and all geographic regions reported higher sales," the company said.

Kohl's is trading at the highest levels since 2007, but unlike some retailers it doesn't look overpriced, trading at roughly 15.5 times forward earnings.

On the other hand, Sears earnings were worse than expected on almost every metric. Comparable store sales down 4.4 percent, with the domestic comps down 7 percent (across the board, even in consumer electronics) and Kmart comps down 2 percent. Plus, gross margins are declining.

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Sears is proceeding toward the formation of a REIT to separately manage the real estate they own, which will likely happen in May or June. Roughly 200 to 300 stores will be sold to the REIT, and proceeds are expected to be "in excess of $2 billion." With a cash balance of only $250 million, Sears will likely need the money they collect from that REIT to fund its operations.

2) There's a lot of debt in the energy business, particularly in the exploration and production business, and Noble Energy is trying to reduce its leverage. The firm is doing a secondary offering of 24.15 million shares—including a 3.15 million share underwriting option—to pay down $150 million in debt under its revolving credit facility.The remainder will be used for general corporate purposes. That will increase Noble's share count about 7 percent.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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