Another Peek at Earnings Trends

 | Oct 21, 2011 | 7:53 AM EDT
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As we hit the meat of earnings reporting season, I am checking up on the earnings estimate trend for the S&P 500. The estimate revision trend exerts a strong influence over stock-market performance, so it is worth looking at regularly. At the end of September, I noted that a challenging divergence was in place. The index had plunged, yet the 2011 operating earnings-per-share estimate was holding up quite nicely. That sort of situation is usually unsustainable: Either the market will rally, or earnings will roll over.

A month later, the earnings estimate is down slightly, but essentially has held up. Earnings season is when the estimates are usually revised meaningfully, on the flow of new information. With earnings holding up, the market is up substantially from the low (albeit with ugly volatility).

S&P 500 Earnings Estimates
Source: FactSet

So far, the earnings trend is fitting with my position that we will see very modest drift upward, punctuated by violent Europe-driven swings. We still have a couple more weeks of earnings to go, so we can't declare victory yet -- but so far, so good.

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