Now that there probably isn’t much more upside for profit margins, revenues will drive earnings. Revenues will be driven by the growth in global nominal GDP, which I expect will be 5% this year, next year, and maybe for each of the next four years. That’s probably the minimum that would be required to drive a secular bull market.
How are we doing? Not so good recently. S&P 500 revenues fell during Q1, and are up only 1.4% y/y. This series is highly correlated with the 12-month sum of the value of world exports, which has been flat for the past year.
A somewhat more encouraging indicator is 52-week forward consensus expected revenues for the S&P 500--the time-weighted average of analysts’ estimates for the current and the coming year. It remains on an uptrend, though it dipped during the Q1-2013 earnings season as analysts lowered their expectations for 2013 revenues because of all the negative revenue surprises.
The revenue disappointments were relatively widespread, with only three of the 10 S&P 500 showing modest q/q gains: Energy, Materials, and Utilities. Here is the y/y performance derby for Q1’s revenues: Consumer Discretionary (7.0% y/y), Financials (4.4), Telecom (4.1), Tech (3.8), Health Care (2.7), Consumer Staples (2.6), Materials (1.5), S&P 500 (1.4), Utilities (1.3), Industrials (0.3), and Energy (-7.6).
Today's Morning Briefing: Dichotomy. (1) The new worry: strong stocks, weak economy. (2) Economic Surprise Index is down. (3) Growing at stall speed. (4) Not fazed by QE phase-out. (5) Door #1: Rally in a secular bear vs. Door #2: Secular bull. (6) Forward earnings at record highs. (7) Revenues are the key. (8) Soft batch or soft patch for US economy? (9) The biggest dichotomy is Europe’s stocks and economy. (More for subscribers.)