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Why earnings can’t save the market: analysts

Talking Numbers

Earnings are hitting record highs. But will that be enough to save the markets?

Earnings are hitting record highs. But will that be enough to save the markets?

According to estimates compiled by the researchers at S&P Dow Jones Indices, operating earnings per share for the S&P 500 are expected to reach a record $26.72.

As a point of reference, last quarter, operating earnings were $26.36. One year before, they were $24.00.

(Read: How the shutdown is hurting Main Street America)

That's earnings. What about sales?

On the top line, the index is expected to have revenues of $277.84 per share for the quarter, putting operating earnings at 9.64% of that number. A year ago, it was 8.9%.

So, while operating earnings are expected to grow 11.3% over last year, sales are anticipated at growing only 3.3%. In other words, companies are squeezing more profit relative to sales growth.

Noting the expected quarter's growth rate, Gina Sanchez, founder of Chantico Global, says, "That supports a total of 4.5% growth rate for [all of] 2013. If you look at the S&P's growth over time, it basically ranges in terms of long-term averages around 5% to 7%. So, we're still actually well below long-term average for the S&P."

But, the technicians take is slightly different, according to Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson. Ross believes the market's current situation is more of a technicals story than a fundamentals story.

(Read: Market selloff? These stocks are getting hit hardest)

"I think that the problems the market is facing are based solely on the price structure that we're looking at," says Ross. "We have this speculative excess in highflying momentum stocks. That pillar is being kicked out from underneath this market. We also share an ominous symmetry with the decline in 2011which followed the US downgrade. That was a 21% decline."

Which side is prevailing in the current market, the fundamentals or the technicals? And what does that mean for the market's next move?

Watch the video above to see Sanchez and Ross analyze the S&P 500 and what we can expect from the market.

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