If you’re an avid index fund investor and still interested in buying stocks, the following chart might be one of the sexiest things you will ever see.
Image Credit: Chart of the Day
That’s right! Earnings for the S&P 500 index have fallen off a cliff. They’ve fallen so low that earnings are lower in 2009 than during the 1940s — during the lows of the Great Depression.
Today’s chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months (with over 90% of S&P 500 companies having reported for Q1 2009), making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative. — Chart of the Day
This really isn’t surprising when you consider just how bad the recession has been. Once the financial crisis kicked into overdrive and fear was so widespread you could cut the tension with a knife, Wall Street analysts slashed earnings estimates for the S&P 500 listed companies with such ferocity they began to resemble Freddy Krueger from Nightmare on Elm Street.
But, with crisis comes opportunity.
As I’ve said before, the stock market crash of 2008-2009 has hit everyone hard. But if you’re a member of Generation X or Generation Y, you’re almost certainly looking at an event that resembles a Halley’s Comet type of event that only comes around once every 75 years.
I’m not alone in my reluctant bullishness when you take into considering that legends like Jack Bogle have said American businesses are essentially on sale.
Whether you want to take advantage of this buying opportunity is entirely up to you. Most investors have been through one heck of a roller coaster ride. But for me, a decimated stock market is just one more reason why I love the recession.
Does this chart make you want to invest more? Maybe less? What is your plan on investing for the rest of 2009? Or did the market completely scare you off and you’ll wait for better news?
What say you?