Concerns about U.S. equity valuations reflect perceptions that the market has fully priced in prospects for earnings acceleration. But analysts' forecasts for 2017 are nearly unchanged from September 2016.
U.S. companies are set to report their strongest profit growth in two years for the fourth quarter of 2016, based on consensus Wall Street analyst estimates. Continuing their recovery from a yearlong decline in quarterly profits, companies in the broad U.S.-market representative S&P 500 Index are expected to report their bottom lines grew by 3.4% in the fourth quarter of 2016, the fastest rate of growth since a 4.6% increase in the fourth quarter of 2014. This quarter’s growth is an improvement from the 3% increase witnessed in the third quarter, and growth is projected to accelerate over the course of 2017.Read on for a summary of their analysis, or view the entire document here.
The earnings recovery caps an eventful year for equity investors, one which featured the end of the longest corporate earnings slump since the 2008–09 financial crisis. Before turning positive in the third quarter of 2016, corporate profits had experienced year-over-year declines for five successive quarters (and revenues had experienced year-over-year declines for six consecutive quarters), meeting the industry definition of an “earnings recession.” During this period, the S&P 500 advanced just 1.9%; investors understandably were skittish given a lack of fundamental support from profit growth.
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