28 MARCH 2024
Most equity markets have rebounded strongly since their late 2022 lows, but for the bull market to persist this year we believe corporate earnings need to deliver. The chart below is encouraging in this regard.
The blue line shows the annual growth in S&P 500 aggregate earnings, dating back to 1985. The red line shows the year-on-year change in the ISM Manufacturing New Orders sub-index, but it is lagged by 1 year. This is because the new orders trend typically leads S&P 500 profits growth by around 12 months.
The recent acceleration in new orders growth thus augurs well for corporate earnings in 2024. Based on this measure alone there is little reason to doubt the consensus forecast for an 11% increase in S&P 500 profits this year (source: Factset). That said, equity indices are likely to come under pressure if earnings disappoint.
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