Is an Earnings Peak Coming?

This earnings season is shaping up to be a disappointment. The “beat rate” will most likely be one of the worst of the past decade. Overall, the earnings outlook is still decent. The S&P 500 is on track to earn 96.67 for 2011.

For 2012, however, I think earnings may not be as strong as some people expect. The chart below shows that earnings for the S&P 500 are expected to rise throughout this year.

What concerns me is that large jump expected in the fourth quarter. Trailing fourth-quarter earnings are expect to rise from $101.08 to $105.37 during the final three months of the year. I just don’t see what could cause a jump like that.

I think it’s more realistic to expected a rounded earnings top. Beginning the third quarter of this year, I expect earnings to range between $100 and $105 for a few quarters. The problem is that earnings already represent a large portion of GDP. That’s probably not going to grow much from here. Instead of rising profit margins, earnings will have to rely on economic growth — and that will be harder to come by in 2012 and 2013.

Posted by on February 7th, 2012 at 5:00 pm

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