S&P 500 Earnings

Every Tuesday, I scrub the weekly consensus expected earnings data for the S&P 500. I get the stats from the folks at Thomson Reuters I/B/E/S, who missed a few spots during the week of July 12. They reported an uptick in the quarterly consensus earnings expectations for Q2, Q3, and Q4. Now their numbers show that Q2 has been flat for the past two weeks through July 19 at a new low for the series around $25 per share, which would be an increase of just 4.5% y/y. The latest numbers also show that Q3 and Q4 estimates have been lowered every week since the start of Q2. In other words, the upticks two weeks ago are gone.

As a result, the 2012 and 2013 estimates are at new lows of $104.11 and $116.41, respectively. These numbers imply earnings growth rates of 6% this year and 12% next year. They may still be too optimistic since revenue growth is likely to be closer to 5% during 2012 and 2013, while profit margins are likely to remain flat over this period.

S&P 500 forward earnings, which is the time-weighted average of the current and coming year estimates, has flattened out over the past seven weeks at a record high around $110. That happens to be my forecast for next year’s earnings, and is a relatively bullish outlook. Forward earnings tends to be a very good year-ahead leading indicator of actual earnings when the economy is growing. It will be way off the mark if the US economy falls off a fiscal cliff into a recession next year. Nevertheless, it tends to be highly correlated with the Index of Leading Economic Indicators, which fell 0.3% during June, but remains on an uptrend.

Today's Morning Briefing: Food for Thought. (1) Droughts and depressions. (2) QE and the price of corn. (3) Consensus earnings expectations may have further to fall. (4) Yet forward earnings are still at record highs. (5) No recession in analysts’ earnings forecasts. (6) NERI tumbles. (7) A bubble in dividend yielders? (8) Riding the rails. (More for subscribers.)