Chart Talk {Earnings Expectations}

Blackrock was recently out with an article "Eyeing Up Winners {and Losers} in the U.S. Tax Overhaul".   One of the things they chart in that article is the expectations for earnings growth in 2018.  Largely this is because of the recent changes to the tax code.  Here's part of their thoughts.

"The new tax law drops the statutory corporate rate 14 percentage points and offers companies easier and cheaper access to cash held overseas. The former is generally a bigger boon for domestically oriented companies, which have likely been paying an effective tax rate closer to the U.S. statutory level. The latter gives multinational companies greater reason to cheer, allowing for more flexibility in deploying cash. We note an uptick in mergers and acquisitions (M&A), for one, and companies generally have more cash to increase their business investment."

Whatever reason you want to pick from Blackrock's note the expected increase in earnings can be seen in the chart above.  2018's numbers are in gold.  The axis on the right shows the expected percent increase for estimated earnings.  What should be noted is how different the lines representing 2015-2017 look versus 2018.  Most years I've been in the business earnings estimates by analysts start out high and end lower.  The graph's depiction of 2015 and 2016 is pretty typical of what you can normally expect, although perhaps not at something close to a zero rate of growth like we saw in those years.  By-the-way that very low growth rate for earnings in 2015-2016 is largely why stocks for the most part trended water back then.  Stocks usually need earnings increases or expectations of increases to power higher.  

This increase in profits is largely what's been backstopping the markets recently, especially since those estimates continue to rise.  This could also have positive implications for earnings in 2019 as well.  

Back later this week.

Long ETFs related to the S&P 500 in client and personal accounts.  Short S&P 500 in a personal account as part of a separate individual strategy.