Future Earnings

We talk a lot about the importance of future earnings to stock market performance.  We've noted the strong correlation between market gains and earnings increases.  Dr. Ed Yardeni over at his excellent blog noted yesterday this same trend.  The chart above is his as well as the excerpted commentary below.

"Helping to mitigate corrections have been the steady uptrends in the forward earnings of the S&P 500/400/600 to new record highs. Forward earnings did it again last week. What is different this time is that estimates for 2015 have stopped falling. Over the past three years, annual estimates mostly fell, yet forward earnings moved higher because the coming years’ estimates remained higher than the current years’ estimates. In calculating forward earnings, the former get more weight and the latter get less weight as time passes. 

Another positive is that S&P 500 forward revenues remains on an upward trend and rose to a new high during the week of July 3. Estimates for 2014 and 2015 have been rising recently and are expected to grow 3.4% and 4.4%, respectively. With the exception of Emerging Markets, the US stands out as having one of the best-looking forward revenues profiles among the various major global MSCI composites. It has the best profile for forward earnings. The US forward profit margin is at a record high, yet still trending higher."

One final comment:  Note that according to Yardeni, the only region of the world with a better forward revenue per share profile than the US are emerging markets.  Emerging markets have had a better 2014 but they still are locked in a trading range {albeit at the higher end of that range}, are still trading below their 2007 highs and still have not taken out their highs last set in 2011.  Not saying that means the stocks are going to run but think it's fair to note the discrepancy between revenue growth and stock price performance.

Link:  Yardeni:  The US Stands Out.

*Long ETFs related to emerging markets and the S&P 500 in both client and personal accounts although these positions can change at any time.