Tuesday, July 30, 2013

Forward Earnings Flying High (excerpt)

Once again, I can report that S&P 500 forward earnings rose to yet another record high of $118.26 per share last week. The forward earnings of the S&P 400 and S&P 600 also rose to new record highs last week. Forward earnings are flying with the hawks.

In recent weeks, the 2014 earnings estimate for the S&P 500 has remained remarkably stable around $123 per share. Forward earnings is converging toward the 2014 estimate, whatever it might be at yearend. In other words, 2013 earnings are becoming increasingly less important than 2014 earnings.

The Q2 earnings season is about half over, as 52% of the S&P 500 companies have reported. So far, the $0.43 increase in the quarter’s blend of actual and estimated results is on the weak side, a surprise given that estimates were lowered significantly coming into the earnings season.

In addition, the Q3 estimate has been lowered by almost as much as the upside surprise to the Q2 blend. Now analysts are expecting Q3 earnings to grow 6.1% y/y, down from 10.7% at the start of the year. On the other hand, they still project an 11.9% y/y growth rate for Q4, but that is down too, from 18.1% at the start of the year, and also likely to be cut further.

As I said, none of this matters if the 2014 estimate remains so high. Increasingly, that will be the number that the market discounts.

Today's Morning Briefing: Doves vs. Hawks. (1) 700 predictions. (2) Hawk-eyed prognosticators. (3) Lonesome hawks. (4) Not much growth in H1’s GDP. (5) Capitalizing R&D and “Star Wars.” (6) Consumers are still driving the economy. (7) Business spending on equipment, structures, and inventories is flat-lining. (8) Trade is a drag. (9) Federal spending gets sequestered. (10) Forward earnings flying with the hawks. (More for subscribers.)

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