Will a 2nd Half Earnings Recovery Materialize?

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This March, the S&P 500 index has closed near record high values.

However, S&P 500 company earnings for Q1 are projected to decline (-0.7%) for the second time in the past three quarters.

Yes, analysts expect little earnings growth for Q1. Yet, they predict earnings growth rebounds by double-digit levels in 2H.

For Q3, the estimated earnings growth rate is +10.1%.

For Q4, the estimated earnings growth rate is +15.6%.

For Q3 earnings growth, analysts have a mixed record in terms of the accuracy of their predictions at this point in time (late March) in the year over the past three years.

  • In March of 2010, the estimated growth rate was +26.7%, which was actually below the final growth rate of +33.8% for the quarter. In March of 2011, the estimated growth rate was +15.3%, which was just slightly below the final growth rate of +16.5%. In March of 2012, the estimated growth rate was +4.9%, which was above the final growth rate of -1.1% for the quarter.

For Q4 earnings growth, however, analysts have been too optimistic in their predictions at this point in time (late March) over the past three years.

  • In March of 2010, the estimated growth rate was +32.7%, which was well above the final growth rate of +18.1%. In March of 2011, the estimated growth rate was +18.6%, again above the final growth rate of +11.0%. In March of 2012, the estimated growth rate was +15.4%, which was well above the final growth rate of +4.2%.

Summary:  While analysts both underestimated and overestimated final Q3 earnings growth rates at this point in time (late March) over the past three years, they consistently overestimated the final Q4 earnings growth rates at this point in time.

Two related questions I have:

Will the S&P 500 trade down on weak Q1 earnings results?

What likelihood do you place on the S&P 500 index achieving high earnings growth rates in the 2nd half?

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