Thursday, August 14, 2014

S&P Revenues Growing Solidly (excerpt)

Bull markets are fundamentally driven by rising earnings, which are driven by rising revenues. Since more companies are doing more of their business on a global basis, the outlook for revenues depends on the outlook for the global economy. So far, so good: The global economy isn’t booming, but it is growing fast enough to drive revenues and earnings higher. It is likely to continue doing so over the rest of this year and next year too. Let’s first have a close look at the latest developments in the US before turning to the rest of the world:

(1) Business sales. US business sales rose 0.3% m/m to a new record high during June. This series tends to be highly correlated with S&P 500 revenues. Business sales--which includes manufacturers’ shipments and distributors’ sales--rose 4.7% y/y during June. S&P 500 revenues grew 5.8% y/y during Q2.

(2) Forward revenues. Not surprisingly, there is a good fit between S&P 500 actual quarterly revenues and S&P 500 forward revenues, which is available weekly. The latter has been rising rapidly this year to new record highs and is up 4.2% y/y through the first week of August. That’s because industry analysts’ consensus expectations for 2014 have stopped falling, while 2015 estimates have been rising in recent weeks. They now expect S&P 500 revenues to grow 3.9% this year and 4.2% next year.

Today's Morning Briefing: Revenues Looking Up. (1) Fundamentally, revenues drive earnings drive stocks. (2) Business sales, forward revenues, PMIs, and federal tax receipts all bullish for corporate revenues. (3) S&P 500 revenues up 5.8% y/y during Q2. (4) Europe is weighing on global revenues. (5) EM MSCI has outperformed since 2006 because revenues outperformed. (6) Latest Chinese indicators upbeat for China and for global economy. (7) Focus on market-weight-rated S&P 500 Retailers. (More for subscribers.)

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