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Nov 08
2010

More good news about corporate earnings

Posted by Stephen Taub in S&P; 500earnings forecast, earnings, Cash

Stephen Taub

Perhaps the most encouraging piece of business-related news I have read in a long time was reported by Bloomberg this morning. It also probably explains why the stock market has been surging since the beginning of September.

The wire service reported that 198 companies lifted their earnings estimates above analysts' forecasts in October while 130 companies reduced them. Bloomberg said this is the biggest gap since it began tracking this data in 1999.

The upgrades are being led by shipping companies and computer makers.

Bloomberg said the last time executives were this optimistic, stocks rose 39 percent over the following 3 1/2 years. Nice.

Bloomberg's data corroborates a report issued by Standard & Poor's at the beginning of the third-quarter earnings season, when it forecast a 31 percent rise in operating results for components of the S&P 500 index in the third quarter. It projected a 33 percent gain for the S&PMidCap 400 and 103 percent increase for the S&P SmallCap 600.

In its report, Bloomberg said about 1.5 US companies raised earnings estimates above analysts' forecasts for each that cut projections in October. That is triple the average in the past 10 years.

It noted the ratio was at its lowest in December 2008, when it looked like a near depression was possible.

This data also bodes well for employment. If corporate earnings continue to rise, and at a rate above consensus estimates, there is a good chance that a growing number of these companies will finally use some of their earnings to hire more people, so they can continue to boost growth.

In fact, the Conference Board reported that its Employment Trends Index increased in October, after dropping slightly in September.

Gad Levanon, Associate Director, Macroeconomic Research at The Conference Board, asserted that October's improvement suggests that negative job growth in the next quarter or two is very unlikely.

The recent monthly increase in the ETI was driven by positive contributions from six out of the eight components. The improving indicators included Initial Claims for Unemployment Insurance, Number of Temporary Employees, Part-Time Workers for Economic Reasons, Job Openings, Industrial Production and Real Manufacturing and Trade Sales.

We're getting there, albeit very slowly.

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