Coming into the Q1 earnings madness.
From Dr. Ed's Blog, March 29:
High-Octane Earnings
I am raising my S&P 500 operating earnings forecast for 2021 from $175 per share to $180, a 27.8% y/y increase from 2020. I am also raising my 2022 forecast from $190 to $200, an 11% increase over my new earnings target for this year. I would have raised my 2022 estimate more but for my expectation that the Biden administration will raise the corporate tax rate next year.
As I've observed, the economy was hot before the third round of “relief” checks started going out around mid-March. Now it is likely to turn red hot as the Treasury sends $1,400 checks or deposits to 285 million Americans in coming weeks.
I have also observed that the average of the business activity indexes compiled by the Federal Reserve Banks (FRBs) of New York and Philadelphia for their districts jumped from 17.6 during February to 34.6 during March, the highest reading since July 2004 (Fig. 1). This is a very significant development for the following reasons:
(1) Regional and national business surveys. Their average tends to be a good leading indicator for the average of the five surveys conducted by these two FRBs along with the ones in Richmond, Kansas City, and Dallas. The average of the five business activities indexes is highly correlated with the national M-PMI (Fig. 2). That means that the average of the New York and Philly indexes also is highly correlated with the national M-PMI and is signaling a solid number for the latter’s March reading (Fig. 3).
(2) Business indexes and S&P 500 revenues growth. “What does this have to do with S&P 500 earnings?,” you might be wondering. Good question. I won’t keep you in suspense. Previously, I’ve observed that the M-PMI is highly correlated with the y/y growth rate in S&P 500 aggregate revenues (Fig. 4). February’s M-PMI reading of 60.8 matches some of the best readings in this indicator since 2004! The March reading could be stronger, implying that S&P 500 revenues may be set to grow 10%-15% this year. That’s certainly confirmed by the similar relationship between the growth in revenues and the average of the New York and Philly business activity indexes (Fig. 5)....
....MUCH MORE.
