Corporate America’s Profit Engine Is Just Starting to Rev Up

Don’t belittle Corporate America’s famous profit engine.

Equity strategists are boosting earnings forecasts for the S&P 500 Index over the coming year faster than they are marking them down, pushing a key indicator tracking the momentum of analyst revisions well off its November nadir. After hitting negative 70% late last year, this metric — which focuses on forward earnings-per-share over 12 months — is closer to positive territory at minus 28%, according to data compiled by Bloomberg Intelligence.

The indicator has been touted as a forward-looking gauge of the profit outlook that may support the case for stock gains over the coming year. The trough in revisions is a tell-tale sign that the earnings story is picking up, per Michael Casper, equity strategist at BI. In fact, the S&P 500 historically has seen a median increase of 5.1% in the four quarters following a trough in earnings-per-share growth, BI data show.

“This is good news for the outlook on corporate profits and the trajectory of the stock market because this indicator has most likely finally bottomed,” Casper said. “It means more stocks are beginning to see better times ahead — and an eventual positive reading will confirm that the outlook is indeed rosier for 2024.”

So even though profits for S&P 500 firms are forecast to drop for a third straight quarter, earnings growth is actually improving when the energy sector is excluded. The group has skewed estimates lower for the broader index as inflation and commodity prices ebb, with earnings growth without the sector expected to return in the second half of the year, BI data show.

Earnings-Revision Momentum Signals Brighter Times Ahead | Profit revisions for S&P 500 companies appear to be past worst point