A Forward Look on S&P 500 Earnings – It’s All-Important

Consensus sees a -0.3% in EPS growth for 2016 and a hockey stick +13.3% for 2017. In 2015, the S&P 500 saw -0.8%. In 2014, it saw +5.1%. Consensus uses +1.8% for 2016 and +5.9% for 2017 as fresh revenue growth comps.

Second, Keep an Eye on the Small Caps

Russell 2000 stocks lead as markets go “Risk-on.” Fast-growing small U.S. companies beat consensus more easily. A 2016 “risk-on” rally remains my call into the fall, after two years of poor performance.

Finally, Keep an Eye on Manufacturing

The U.S. ISM manufacturing PMI is strengthening. At 52.6 in July and 53.2 in June, a big lift took place from the 50.7 in May, 50.8 in April, 51.5 in March, and 51.3 in Feb. Companies have benefited from a mild pullback in the value of the U.S. dollar that makes U.S. goods less expensive. Consumer demand at home has also been steady. Higher oil prices ease pressure on energy firms to slash investment.

The global manufacturing sector showed a little life too. At 51 in July, the J.P. Morgan Global Manufacturing PMI™ registered a better reading to signal an early bounce to industry growth. Japan remains weakest among developed areas. China is flat. Brazil looks worst at 46, but that PMI read is bouncing. Russia broke 50.