Industry analysts are raising their S&P 500 revenues expectations for both 2018 and 2019 to record highs (Fig. 3).
Revenues are expected to grow 7.9% this year and 5.1% next year. Forward earnings (the time-weighted average of the estimates for the current year and coming year) rose to yet another record high during the 7/2 week. It remains on the same steeply ascending trendline that it has been on since early 2016. There is no hint of a global slowdown, as there was from the second half of 2014 through the end of 2015. The same can be said of the forward revenues of the S&P 400 and S&P 600.
Not surprisingly, this is trickling down to forward earnings for the S&P 500/400/600, all of which are at record highs (Fig. 4). The uptrends in the forward earnings and forward revenues of the S&P 600 SmallCaps have been particularly steep so far this year, which explains why they have been outperforming the LargeCaps and MidCaps stock price indexes (Fig. 5, Fig. 6, and Fig. 7).
Could it be that Trump’s deregulatory policies are benefitting small companies more than large ones? That makes sense to us since regulations often are designed to protect big companies (that can afford high-priced lobbyists) from smaller upstarts. According to the monthly survey conducted by the National Federation of Independent Business, the percentage of small business owners concerned about government regulation and taxes has dropped sharply since Trump’s inauguration at the start of last year (Fig. 8).
Now let’s have a look at the forward revenues picture outside the US. We won’t keep you in suspense: It confirms the rosy global economic outlook provided by the US data. We focus on the forward revenues of the major global MSCI stock price indexes, all in local currencies:
(1) All Country World ex-US. The forward revenues of the All Country World ex-US MSCI has been lagging behind the US (Fig. 9). The latter has been making new record highs since June 5, 2014. The former has been rising in new high ground only since May 4, 2018. The US series is up 16.7% since the start of 2016, while the overseas one is up 8.9%. Nevertheless, both remain at record highs, providing an upbeat assessment of the current global economic outlook. Of course, that could quickly change for the worse if the current round of trade skirmishes escalates into a broad trade war.
(2) EMU, Japan, and UK. The forward revenues of both the EMU and Japan remain well below their previous highs (Fig. 10). However, both started to recover at the start of 2017, rising 3.2% and 6.8% since then. The UK series is surprisingly strong, rising 6.9% since the start of 2016, almost back to its previous record high in mid-2013.
(3) Emerging Markets. The forward revenues of the Emerging Markets MSCI is up 18.3% since mid-2016, only recently rising to slightly above its 2014 record high (Fig. 11).
(4) World. The forward revenues of the All Country World (in local currencies) is dominated by the US (Fig. 12). Like the US, the estimates for 2018 and 2019 have been moving higher since late last year into record-high territory. The World’s forward revenues has been doing the same since late 2017.
From the perspective of industry analysts, the outlook remains bullish. The usual hedge clause applies: “barring an all-out trade war.”
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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