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It always nice to have some sort of fundamental perspective to explain the 33% move in the S&P 500 since March 9th! 

Since March 9th, the top five performing sectors have been Financials (XLF) up 88.5%, Industrials (XLI) up 29.3%, Materials (XLB) 39.3%, Consumer Discretionary (XLY) up 38.7% and Technology (XLK).  The reflation trade has pushed up the XLI and the XLB, while fundamental improvement has been a driver for the XLF, XLY and the XLK.

As of March 9th bottoms up consensus estimates for the XLY were estimating a 10.4% decline in operating EPS.  As of June 24th consensus estimates now have operating EPS only down 0.1%, an improvement of 10.3%.  The incremental news on the consumer continues to suggest that momentum is slowing in a number of key areas, which suggests that the big move in EPS to the upside has been made.  Over the past week, the Consumer Discretionary (XLY) is the fourth worst performing sector, declining 3.0% versus the S&P 500's 1.5% decline.  We remain short Consumer Discretionary (XLY).  

The numbers for the XLK are even more astounding.  Back in March, consensus bottom up operating EPS estimates for the XLK were down 20.6%; today it stands at -0.03%. 
 
While the benefit of the declining dollar has been reflected in the stock prices of the components of the XLI and the XLB, it's not reflected in the fundamentals.  In fact, things are looking worse for the XLI and the XLB since March 9th.  For the XLI and the XLB, current 2009 operating EPS are estimated to be down 27.3% and 37.6%, respectively.  This represents a decline of 12.8% and 19.6%, respectively, from March.
 
From a fundamental perspective, Energy looks interesting.  Since March 9th operating earnings estimates for the Energy sector have only improved 9.3%, despite a 33% move in the USO since March. 
 
Overall, despite the 33% move in the S&P 500 since March 9th, operating EPS estimates for the S&P 500 has declined to -10.5% from -8.3% in March.  As a fundamental analyst earnings matter most.  Stock are up earnings are down, and it's becoming consensus that the economy is going to recover in 2H09.  AT 917 in the S&P 500, the upcoming earning season takes on increased importance.      
 
Howard Penney
Managing Director

S&P 500 SECTOR OPERATING EARNINGS ANALYSIS - chart89