Time to revisit one of my best trackers, the trend in earnings estimates for the S&P 500 compared to the price action. This chart is looking downright scary at the moment.
The estimate revision trend is measure of expectations for fundamentals and it is not looking great. The 2013 operating earnings estimate for the index continues to be ratcheted down. At this time one year ago, the street expected the S&P 500 to earn $118 a share. That expectation was cut constantly last year and continues to go down even recently. (This foots with Doug Kass' prediction that the S&P 500 will earn only $100 a share this year. Another 8% of cuts and we are there.)
Meanwhile, the market is partying like its 1999. I love a good rally as much as the next guy, but I get really nervous when the fundamentals do not underpin the advance.
This market is straight up, but the earnings performance is blasé and if things were really accelerating under the covers, it would be showing up in analyst estimates. My experience is that the Jaws-like gap you see in that chart is rarely sustainable. Either estimates must start rising or we are in for a doozy of a correction.
The timing is open to debate, but with each passing day the tension rises between those two lines and something must give. Until I see a turn in the earnings line, my guess is a correction is imminent.