Wednesday, April 11, 2012

Corporate Earnings: The Best Is Behind Us

The Lehmann Letter (SM)

Standard & Poor's recently completed its earnings summary for the last quarter of 2011 (the most recent quarter for which complete data are available):

(Click on S&P 500 under Categories, then click on Download Index Data and click on Index Earnings and open the spreadsheet to find Actual As Reported Earnings Per Share.)

You will see that earnings have stopped growing. That could be a minor fluctuation, but probably isn't. This letter believes that the best news is behind us.

Corporations have raised their profit margins to record levels by slashing their labor forces. But those gains are no longer available now that hiring has resumed. Sales volume will also grow slowly in this anemic expansion. If margins have peaked and sales volume expands sluggishly, you can't expect robust earnings growth.

Stocks are up this morning, but there has been a broad retreat in the past week. Many eyes are focused on Europe and that continent's travails. It may be that our troubles are domestic, not imported.

(To be fully informed visit

© 2012 Michael B. Lehmann

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