Earnings Keep Investors Engaged

by Marilou Moursund on May 10, 2011

in Earnings,Geopolitical

Despite all the negative geopolitical news, the market has maintained its positive momentum.  Positive earnings reports combined with the relative unattractiveness of returns on cash and bonds have kept investors interested in the equity market.

From Ed Yardeni’s Morning Briefing today:

What do industry analysts have in common with Navy SEALs? They both have nerves of steel. Industry analysts didn’t flinch last week. Despite all the flash crashes in commodity markets, consensus expected earnings for the S&P 500 rose to a new high of $99.69 a share for 2011 and $113.13 for 2012. Forward earnings–the time-weighted average of this year and next year–rose to $104.34, exceeding the previous record high of $103.79 during October 2007. Despite the political upheaval in the Middle East and the nuclear meltdown in Japan, forward earnings have increased every single week since the beginning of the year.

The 2011 S&P 500 earnings estimate has risen 3.9% since the end of last year from $95.97 to $99.69 last week. The Q1 earnings surprise has added $1.16 over the past five weeks to the 2011 estimate. The estimates for Q2-Q4 have all been rising too, and have added $1.05 to the 2011 estimate since the start of the Q1 earnings season. It really is déjà vu all over again with a significant difference. When actual results beat expected ones over the past eight quarters, industry analysts didn’t raise their subsequent quarterly numbers as they’ve been doing during the current earnings season. (See our blog for three charts showing the consensus weekly forecasts of quarterly earnings for 2009, 2010, and 2011.)

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