Earnings Sentiment; or, This Is Nuts!! When's the Crash?!: CHART OF THE DAY
Wall Street sell-side analysts are now unmoored from reality. Next four-year S&P500 nominal earnings growth totalling exp(0.23 x 4) - 1 = 150%? The technical term is “nuts”…
These are “consensus” nominal earnings growth estimates. Part of it is that a bunch of forecasters do expect an inflation breakout approaching the high single if not low double digits, and their expectations do move the average up. But that is not most of it.
Most of it is that the people making the earnings growth estimates have gone gonzo—or, rather, that heavy pressure is being applied to sell-side analysts by bosses who strongly feel that coming in with a lower earnings-growth estimate than others will be seen as a downer by clients who would otherwise spend and invest like drunken sailors. Exactly whose sentiment—or desire for permission to buy assets—is driving this is very unclear:
From:
Callum Thomas: Earnings Euphoria <https://www.chartstorm.info/p/chart-of-the-week-earnings-euphoria>: This week’s chart pretty much speaks for itself (+has just made a new all-time high)…. The estimated annualized compound growth rate expected by sell-side analysts over a three to five-year horizon aggregated for the S&P500…. Wall Street analyst sentiment. And like all good sentiment indicators there are elements of truth and elements of emotion all mixed up in it…. Some will argue that there is good reason for this, and as I noted they will be right that some of it is well-reasoned and true. But there is clearly a powerful sentiment and story dynamic…
Corporate profits in the US right now are at a record high of 22% of of national income. (Labor 65%, other—rent, net interest, indirect business taxes, proprietors’ income—13%.) At 3% inflation, 0% (because no net immigration) labor-force growth, and 2%/year productivity growth, these forecasts give us a profit share of 46% in four years, and a labor share of 41%: real wage declines averaging more than ¼ of current levels.