IB Net Payout Yields Model

SP500 Stocks to Shatter Earnings Record

Earnings records were a big focus in the first part of 2011. Most analysts debated whether the SP500 would report 2012 earnings 5,10, or 15% above the record numbers already expected in 2011. Slap a 15 multiple on those numbers and estimates for 2012 could easily hit 1,500 to 1,650.

Fast forward to a rough summer with heightened fears of another recession as 2011 ended and the focus on the record earnings disappeared. Hardly anybody discusses earnings anymore.

It was interesting to see this Investment News article where David Cote of ING forecast 7% earnings growth in 2012 to $105. Slap a 15 multiple on those estimates and the SP500 could reach 1,575. That would be right around the record high.

This number is nowhere near the $110+ estimates from the Spring time period, but very noteworthy that analysts are now looking past the recession fears and forecasting a solid '12. If the market could ever return to a focus on fundamentals, this market would rocket higher. The European issues appear to be going away bit by bit. Yields are falling and everybody involved from governments to banks, to investors are now very prepared for the potential negative outcomes.

The real question is whether record earnings bring record stocks prices next year. Very encouraging that the vast majority of the markets isn't focused on this question.

Details from IN article:

  • Doug Cote, chief market strategist at ING Investment Management, said if investors are feeling pessimistic about the markets, they are missing the picture presented by the fundamentals.
  • “Things are a lot better than most people think, because the fundamentals press on despite the global risk that's out there,” he said.
  • For example, he pointed out that the expected final 2011 tally for the S&P 500 Index ($98) will shatter the current record set in 2007, when the index earned $88 per share.
  • “Our forecast is for $105 per share in 2012,” Mr. Cote said.
  • As part of a 7% increase in earnings, he is also calling for a 12.5% gain by the S&P next year to 1425.

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