the attached chart illustrates corporate profits after tax compared to the SP500 'Short Take' - February 7, 2007 Mark Pender, Senior Writer, Econoday http://www.nasdaq.com/econoday/repo...urce_shorttake/year/2007/weekly/06/index.html what surprised me looking at the chart is first the stock/index price acceleration 95 - 00 second the corporate profit tripling acceleration since 02 v the moderate increase during the previous 26 years shown on the chart I wonder if it wouldn't be better watching the corporate profit chart rather than charts of the indicies to determine when 'the top' will occur and forthcoming recession (?) begin how good an economic indicator is corporate profits ?
Maybe not now. But if one wants to form an educated guess as to where equity prices may be 9 months from now, consider that net earnings are expected to slow to 6 or 7% from the 16.5% we hit last year.
The four gray bars to the right are future expectations as gauged by Wall Street analysts. It's not unusual at all for analysts to underestimate future earnings; in fact that's been the exact pattern through the whole expansion. they have been underestimating for the last 20 quarters. Remember under promise and over deliver.