Expectations paint a rosy picture…
Moving on to earnings expectations for the US stock market (SPY) (IWM) (QQQ), Jeffrey Gundlach highlighted how every time analysts begin with a 10%–12% earnings estimate for the next year, these estimates drop to a sub-6% level as the year under forecast comes around.
…in the face of an ugly reality
Actual readings have, however, been quite different from expectations. Operating earnings grew 5.1% in 2012, 5.4% in 2013, 4.9% in 2014, and -2.4% in 2015. Estimates for the current year stood at 2.7% in April 2016. These estimates were over 12% about a year back. Interestingly, for 2017, expectations have again been at 10%–12% despite such low rates coming in.
Gundlach also believes that the S&P 500’s earnings growth estimates, as measured by earnings per share, are ironic. Over the past two years, earnings per share of the benchmark stock market index for the United States, the S&P 500 (IVV) (VOO), has clearly been on a declining trend. Yet, consensus still seems hooked to the belief that earnings growth will really pick up over the next two quarters, as the chart above shows. Jeffrey Gundlach finds this hilarious.
In fact, Gundlach finds evidence in certain charts that seems to suggest that a recession is brewing.