Stocks prices have been on a solid upward trajectory as we all know but, so have earnings estimates. This is from Ed Yardeni today:

“(1) 2018 and 2019. The Tax Cut and Jobs Act (TCJA) passed at the end of last year is already boosting earnings estimates. Joe reports that analysts’ consensus estimates for S&P 500 operating earnings in 2018 rose a whopping $2.13 w/w to $150.15 per share during the first week of January. The estimate for 2019 rose $2.23 to $165.35.

Remarkably, revenue estimates also seem to have been boosted, but we think that’s attributable more to animal spirits than the TCJA. Industry analysts are now expecting revenues to rise by 5.7% this year and 4.6% next year, following the 6.3% gain last year.

Through January 4, profit margins are projected to rise from 10.5% for 2017 to 11.2% this year and 11.8% next year.

(2) Forward earnings. On a y/y basis through the second week of January, the 52-week forward consensus expected earnings of the S&P 500/400/600 are up 13.1%, 18.8%, and 15.0% (Fig. 6). So they account for much of the increase in their respective stock price indexes over this period.

As a result, forward P/Es are elevated, but aren’t much higher than a year ago. The S&P 500 has a forward P/E of 18.5 currently, up from 17.1 a year ago. On the other hand, the S&P 400 and 600 forward P/Es are basically unchanged at 18.4 and 20.0 now vs 18.8 and 19.9 a year ago.

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U.S. Manufacturing Has Strongest Year Since 2004

by Marilou Long on January 4, 2018 in Earnings

Manufacturing data confirms the strong earnings that companies have been reporting.  The factory index came in at 59.7(readings above 50 indicate expansion), and the new orders index at 69.4 is the highest in 14 years.  From the linked Bloomberg article: The survey-based measure of factory activity — the year’s second-highest behind September, when storm-related supply […]

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Fed Hikes Rates a Quarter Percent

by Marilou Long on December 14, 2017 in Employment

As was widely expected, The Federal Reserve raised rates yesterday by a quarter of a point.  From the linked Bloomberg article: Federal Reserve officials followed through on an expected interest-rate increase and raised their forecast for economic growth in 2018, even as they stuck with a projection for three hikes in the coming year.  “This […]

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Productivity: A potential positive surprise for the market

by Laura Ehrenberg-Chesler on December 12, 2017 in Economic Indicators

From the “Wall Street Journal”: “Perhaps 2018 will be the year productivity finally begins to pick up. Technologies such as speech recognition, online chatbots and machine learning are being quickly adopted, capital spending is picking up and tight labor markets give companies an incentive to find better ways of working. “… productivity leapt 3% in […]

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Q3 GDP Revised Upward to 3.3%

by Marilou Long on November 29, 2017 in Economic Indicators

The initial estimate of Q3 GDP growth was 3.0%, and it is now revised upward to 3.3%.  From the linked Bloomberg article: Consumer spending, which accounts for about 70 percent of the economy, continues to be the main driver of growth, though revisions showed it was slightly weaker than previously estimated on purchases of both […]

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Aristotle’s Thought for the Day

by Laura Ehrenberg-Chesler on November 17, 2017 in lifestyle

“The only way to avoid criticism: Do Nothing Say Nothing Be Nothing”

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Business Confidence Continues to Drive Manufacturing Gains

by Marilou Long on November 14, 2017 in Economic Indicators

While most of the media is focused on Congress’ push for tax reform, businesses across the U.S. are steadily increasing business investment.  From the linked WSJ article: Also, business investment has risen, a sign companies are spending to increase productivity. In the first quarter, investment in plants climbed a seasonally adjusted annual rate of 14.8%, […]

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Economic Update

by Laura Ehrenberg-Chesler on November 3, 2017 in Economic Indicators

We received economic data this morning including employment and wage growth numbers. These are interesting and important for gauging the progress of the economy. Here is a summary from Business Insider: “The US economy added 261,000 nonfarm payrolls in October, rebounding after a steep decline in September that was caused by the hurricanes. The median […]

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Corporate Tax Reform

by Laura Ehrenberg-Chesler on November 1, 2017 in Investment Strategies

I recently read a very good article in Fortune’s online publication about why corporate tax reform is so important. The author of the article uses Apple as an example. The following is the short introduction to the author’s six part guide to the taxation of multinationals. The entire article is well worth reading. “Surprisingly, the […]

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Service

by Laura Ehrenberg-Chesler on October 20, 2017 in Tribute

For those of you who missed Chief of Staff John Kelly addressing reporters yesterday, describing the process of notifying families of fallen soldiers: “A casualty officer typically goes to the home very early in the morning and waits for the first lights to come on. And then he knocks on the door; typically a mom […]

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