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Recent Moves In EPS May Be Misleading

Consensus expectations for calendar year 2016 S&P 500 earnings are finally beginning to show improvement, but should investors be skeptical? Over the past month analysts have increased aggregate S&P 500 earnings expectations by nearly 50 basis points (bps), raising 2016 expected earnings growth to 0.4% today from the slightly negative growth seen at the start of May. 

A mix of positive and negative factors has influenced earnings expectations over the past month. Yet, this is the first sustained reversal in the trend of deteriorating calendar year 2016 expected earnings seen since the start of this year. This, combined with other developments discussed in the note attached, provide a glimmer of hope that we may have finally turned the corner with regards to corporate earnings growth momentum.  

However, reviewing earnings trends dating back to 2012, full-year earnings estimates tend to bottom at or around the start of May, then increase for a few additional weeks, and then return to a downward trajectory heading into the start of third quarter earnings season at mid-July. The trend for the remainder of the year has continued to the downside for the years analyzed. This suggests that the recent improvement in S&P 500 calendar year earnings-per-share could be temporary in nature. Difficulty has been experienced in predicting growth more recently as a result of subpar economic growth after the Great Recession.

Download the full report for a more detailed analysis on recent changes in earnings growth rates, the factors impacting them, and historical trends for growth going back to 2000.

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