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Growth Jump For S&P 500 Earnings in 2011-12

Earnings of big U.S. companies are making good progress, and even increasing the pace these days, which should be good news for stocks. The vigilant Starmine Professional system of Thomson Reuters, which catalogs the earnings estimates of stock analysts all over the world and ranks them according to each analyst's historical accuracy, tells us that over the next 12 months, earnings per share are slated to rise 17.9 percent. That's an increase from the decelerating growth of the last few quarters, and the best since 3Q 2010 -- in this graph, the blue line shows the rate of growth (click to enlarge):


For 1Q 2011 in isolation, earnings per share for the S&P 500 are projected to rise about 14 percent, excluding the financial stocks, also an increase from the last few quarters.

And the uptick in growth is not just localized. According to Bloomberg,

S&P 500 earnings are poised to surpass the 2007 peak of $90 a share in the third quarter after surging from $7 in March 2009, the quickest recovery since at least 1900, according to data from S&P and Yale University's Robert Shiller compiled by Bloomberg. The gap between projected 12-month profits and average earnings over the last 10 years is set to widen the most since 1951.
US stocks have shown great gains this year, up six percent so far, but Bloomberg would like us to think that's not enough:
Shares haven't kept up with earnings. S&P 500 companies' 12-month profits are projected to reach a record $91 a share by August, according to estimates compiled by S&P and Bloomberg. That would be the highest-ever level on an inflation-adjusted basis and up almost 13-fold from their low two years ago.
I'm all in favor of higher stock prices -- I own a lifetime supply of the S&P 500 -- but I find it hard to get too excited about the profit picture. Sure, employment is getting better, and with it consumer spending, but the recovery is not a surprise, and U.S. economy still has rising oil prices and commodity inflation to contend with. And the aftershocks of weakness in the Japanese economy haven't hit us yet.

Along those lines, The Wall Street Journal tells us to expect a "ding:"

Japan's troubles will shave about 25 cents off first quarter S&P 500-Index profits, now projected to $24.10. But the impact grows, according to Bank of America Corp. projections, doubling its impact on projected second quarter earnings.
... Analysts say the S&P 500-Index members derive about 8% of annual revenue from the island nation. It's a "front-end ding, not a crash landing," for corporate earnings, says RBC Capital Markets equity strategist Myles Zyblock.
The ripple effect on the U.S. economy is still broad: Chip makers can expect higher costs for silicon wafers. Railroads will ferry less coal to West Coast ports, and return with fewer Japanese autos destined for car dealers. First quarter operating margins are projected to slip to 8.6%, the second consecutive quarterly decline.
And one big money manager is downright negative:
"I view current market conditions as a great opportunity to take risk off the table," said Rob Arnott, founder of Research Affiliates LLC, which oversees $75 billion in Newport Beach, California. "When markets are expensive, you're better off letting somebody else bear the risk to pick up that last nickel in front of the steamroller."
Let's hope he's going too far.
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