In our Forward Earnings & The Economy chart book (available to subscribers), we track the relationship between S&P 500 forward earnings on a monthly basis and numerous key global and US economic indicators. We are particularly impressed with the relationship between forward earnings and the IMF’s measure of the value of global exports, as well as the measure of the volume of global exports compiled by the Netherlands Bureau for Economic Policy (CPB). The V-shaped recovery in profits has been driven by the V-shaped recovery in global exports measured either way. The volume index rose to another record high during February, exceeding its previous high during April 2008 by 5.1%. It is up a whopping 66.5% since 2000.
The growth rate of forward earnings is also highly correlated with the manufacturing purchasing managers index (PMI) based on the monthly survey conducted by the Institute for Supply Management. The M-PMI was 61.2 during March, matching previous cyclical highs. That probably means that the growth rate in earnings may be peaking. However, that doesn’t mean that it won’t continue to grow along with world exports.