Global acceleration watch: corporate profits

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Posted on Friday, October 14, 2016 at 10:26AM by

Simon Ward |

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The forecast here that global growth will pick up into 2017 rests importantly on an assumed recovery in business spending. Firms are expected to turn more expansionary partly in response to a recent revival in profits.

The first chart shows annual rates of change of S&P 500 reported earnings*, incorporating a bottom-up Capital IQ consensus estimate for the third quarter, and Chinese industrial profits, as reported by the National Bureau of Statistics. Chinese profits resumed growth in early 2016 and are rising at their fastest pace since 2013. US earnings seem to be following.

The second chart shows the IBES consensus estimate for MSCI World 12-month-forward earnings per share (EPS) in US dollars, along with the “revisions ratio” – the number of analyst upgrades in the latest five weeks minus downgrades, expressed as a proportion of the total number of estimates (and seasonally adjusted). The forward EPS estimate has been trending higher since early 2016, while the revisions ratio is the strongest since 2014.

*Total index earnings not earnings per share.

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