Do you recall what the bears were saying about the earnings-led bull market during 2009 and 2010? They fought it all the way up as the S&P 500 increased 101.6% from a closing low of 676.53 on March 9, 2009 to a high, so far, of 1363.61 on April 29. The Naysayers dismissed the dramatic rebound in earnings as unsustainable. They claimed that it was all based on cost cutting, which couldn’t continue for very long. They predicted that revenue growth would be subpar, at best. So let’s see what actually happened using data we compiled on forward revenues, earnings, and profit margins for the S&P 500 and its 10 sectors in our new publication titled S&P 500 Sector Squiggles: Revenues, Earnings, and Margins.
S&P 500 forward revenues did decline by 6.1% during 2009, while forward earnings rose 0.3% as the forward profit margin rose from 7.7% at the start of the year to 8.4% by the end of the year. But in 2010, forward revenues rose 7.1%, which along with an increase in the profit margin to 9.6% at the end of last year, boosted forward earnings by 23.8%. Data available through early December show that revenues and earnings are up 7.8% and 11.7% so far this year, while the profit margin has stalled since the spring around 10%.
Looking into 2012, it’s hard to see much upside for these three variables. I expect that they will be flat. More specifically, revenues could average $1,050 a share, about the same as this year. The profit margin might edge down to 9.5%. The result would be earnings around $100, up slightly from about $97 this year.
The scenario behind these numbers is slower global growth, with Europe in a mild recession while the US economy continues to muddle along with real GDP growing around 2%.