Shifting profits consensus

Posted by Cardiff Garcia on Jun 28 18:13.

The changing winds of consensus Q2 earnings growth for the S&P 500:

That’s via Bespoke, which reckon that the changes in estimates have been tracking the market, not the other way round. That’s probably right.

We wrote previously that the current profits expansion was already within a quarter or two of being long in the tooth relative to other post-war expansions. A report from Credit Suisse noted that the previous profits expansion, from 2001 through 2006, ended when private-sector compensation growth had started outpacing consumption. Well, consumption hit a wall in the last two months.

The note also explained the degree to which the needed growth in demand “has been dependent upon the Federal government issuing very large amounts of debt and then using the borrowed money to either cut tax payments or make direct cash payments to the US private sector or individual states.” But private-sector deleveraging continues apace while fiscal policy is set to become less expansionary, not more.

Of course, if those telling the “transitory” story are right (and they could be), then we’ll drop the pessimism. Could this profits expansion last longer than the average? Sure, but here’s what was common to those in the past that did:

The key to the longevity of these cycles appears to lie in either robust employment growth and/or robust private sector credit creation.

The US, of course, at the moment has neither.

Related link:
Pitiful profits prospects – FT Alphaville

This entry was posted by Cardiff Garcia on Tuesday, June 28th, 2011 at 18:13 and is filed under Capital markets. Tagged with .

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