Economy rebounds but profits bounded
Data releases in the U.S. have continued to confirm a rebound in the economy. But after digesting all the good news the equity market still appears to be a little troubled. As always, it is looking ahead and is squinting to see how much profit there is on the horizon. By and large, the market has a glass-half-full attitude, but despite all the optimism, concerns about earnings growth that have been pushed into the background refuse to go away. If, as expected, economic growth in the second half of the year is likely to be less robust than in the first, then the sustainability of rapid earnings growth, as the year progresses, is also in doubt. Consensus analyst earnings-growth forecasts for the S&P 500, based on bottom-up analysis, are quite rosy. To realise this happy outcome, would require a more rapid rate of sales growth or heftier margin expansion than the current situation allows.
