Inquiring minds keep asking: "Is the bottom in?" Of course, no one knows for sure. However, I believe it's not, and one of the reasons is the complete collapse in S&P earnings.

Earnings Estimates

In Is That Recovery We See?, John Mauldin posted the following chart of earnings estimates.



The S&P closed Thursday at 888. That's a richly priced PE of 31. Let's assume that earnings recover to $48. That's still a richly priced PE of 18.5. A bear-market bottom might sport a PE of 10-12, but let's be generous and use 15.

15 x $28.51 would put the S&P 500 at 382!

Let's be more generous and use an earnings estimate of $48. 15 x $48 would put the S&P 500 at 720!

No matter how you slice and dice things, fundamentally, the stock market is very pricey.

Looking For Leaders

For the sake of argument, let's assume that for whatever reason, the bottom is in. What sectors should one prefer?

To help decide, let's take a look at some historical charts of the 2000 NASDAQ bubble.

Intel (INTC) Monthly


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Cisco (CSCO) Monthly


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JDS Uniphase (JDSU) Monthly


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Microsoft (MSFT) Monthly


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Many leaders of the tech bubble had an initial rebound after the bubble popped. Those leaders then languished for years to come. Many other technology stocks didn't survive at all. To be fair, there are some huge success stories - like Apple (AAPL). However, Apple remade itself in a new space rather than by competing in computers.

Credit Housing Bubble Aftermath

Financial stocks were the leaders in the housing and credit bubble that just popped. Here are a few of the survivors the Fed is protecting, with an additional homebuilder thrown in for good measure.

Citigroup (C) Monthly


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Bank of America (BAC) Monthly


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Wells Fargo (WFC) Monthly


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Toll Brothers (TOL) Monthly


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Search For Leadership

There was some serious money that could have been made with excellent timing in the financial sector this spring. However, that's an opportunity gone by, and not worth dwelling on. Besides, opportunities are easier to make up than losses.

Looking ahead, it's difficult to say what sectors will lead the next bull market (energy, alternative energy, gold, pharmaceuticals, etc. are all possible candidates). But whatever the leaders will be, financials and homebuilders aren't good candidates.

Investors should look for new opportunities, as history strongly suggests the last bubble will not be re-blown.