Unique may be the most over-used and misused word in the English language. Something that is unique is just that -- the only one. Unique cannot be used with a modifier. An object or person may be quite extraordinary or exquisitely rare. But to hear or read something or someone described as "very unique" sets my teeth on edge more than any fingernails on a blackboard.
Apple (AAPL), however, does deserve to be described as unique. No other company could nearly double its earnings from a year ago and still be constrained by its capacity to satisfy demand for its products that an executive described as "staggering." I need only look around the Forsyth household to peruse the array of Macbooks, iPads, iPods, the Mac mini that acts as our media center and the iPhone that recently displaced her BlackBerry to understand the phenomenon. (The old man makes do with the cheapo, office-issue Hewlett-Packard (HPQ) laptop and his own old IBM (IBM) ThinkPad (from before Lenovo bought the laptop business from Big Blue) running Linux that'll outlast them all.)
Other companies are reporting March quarter earnings that also are handily beating forecasts, albeit not by such an extraordinary margin. Indeed, the large proportion of beats -- some 80% of companies are exceeding analysts' estimates so far -- is inducing some of the cheerleading financial television anchors to wonder aloud how can it be stocks aren't soaring given this profits performance.
A few of their guests would try to explain patiently that stocks discount the future and not the past (at which point the bookers excise that person's name from their calling list.) Be that as it amy, an array of equity strategists is casting doubt that the earnings growth emerging from first-quarter numbers will continue into the rest of the year. That, they say, suggests the stock market has seen its best levels of 2012.
It should be noted that these are not perma-bears. In essence, they are calculating the earnings portion of the price-earnings equation. Without an expansion of the P/E multiple -- which the odds are stacked against -- stock prices likely have peaked for the year, they say.
"Earnings expectations for the latter part of 2012 seem rather hopeful," writes Tobias Levkovich, Citi's chief strategist. "Equity investors appear to be expecting an upside to USA, Inc's earnings (GDP), adds Barry Knapp, head U.S. strategist at Barclays. Similarly, Brian Belski, who recently moved to BMO Capital Markets as its chief investment strategist, thinks the stock market is running into headwinds of a cyclical earnings peak. And Morgan Stanley's cross-asset strategy team says the ability of current earnings to be sustained is the most important factor for medium-term equity returns.
The upshot of those quote s is relatively consistent: After a nearly 30% recovery from the lows of last October, the broad market, as measured by the Standard & Poor's 500, already has attained these strategists' price targets. In other words, with May just a week away, it's time to sell. Whether you can afford to go away is your business.
Barclays's Knapp writes, "Our analysis shows with the S&P 500 above 1400, the market was implying double-digit earnings growth; we believe this is unattainable in 2012 without significant economic acceleration." The S&P 500 closed Tuesday at 1371.97. The key large-capitalization U.S. stock benchmark hit an intra-day peak of 1422.38 on April 2 and set a closing high of 1419.04 that day.
Citi's Levkovich has a 1425 year-end target for the S&P 500. While he thinks a 10%-20% decline from here is not likely, he doesn't rule out "exogenous" shocks. A worsening of the European sovereign-debt crisis would fall into that category. Levkovich sees the S&P 500 "drifting down to the 1320s-1330s again if nervous again. With a 1425 target in place for year-end, we would wait for weakness to add to positions."
Similarly, BMO's Belski has a 1425 year-end target for the S&P 500, which essentially implies the stock market has seen its best levels for 2012. It should be noted that Belski had been staunchly bullish at the market's lows last year and hasn't changed as the market has approached his targets. Moreover, Belski thinks this is a cyclical hurdle to a secular bull market for the long term from equities' beating the paltry returns from fixed income, into which individuals have stampeded via bond funds. Once clear of that hurdle, he think the path is higher.
With remarkable unanimity, these seers think the good news about near-term corporate earnings is discounted by the stock market, while uncertainties pose risks. For the long term, relatively low valuations and bright profit prospects make equities the assets of choice. That's especially true compared to bonds, which offer depressed yields and the likelihood of price declines as those yields normalize.
But it is a ways to got from here to there. The stock market may already have seen its best levels for 2012 -- even if Apple proves to be a unique exception.
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