Yesterday Americans paused to count their blessings By John Authers
Yesterday Americans paused to count their blessings By John Authers
Copyright The Financial Times Limited 2006
Published: November 24 2006 02:00 | Last updated: November 24 2006 02:00
Yesterday Americans paused to count their blessings.
Thanksgiving is a tradition that goes back to the pilgrims who helped to found the country. So why should investors in the US be thankful?
This year they have more blessings to count than usual. Corporate America continues to produce profits at a prodigious rate and the S&P 500 has gained 15 per cent since July.
The strength of third-quarter results is impossible to dismiss. With the peak weeks of earnings season now over, year-on-year earnings growth looks set to be almost 19 per cent, way in excess of the 15.3 per cent growth predicted when the quarter began, and the 13th consecutive quarter when earnings grew by 10 per cent or more. Companies also surprised forecasters by a greater margin than they had typically done in the past.
Is this sustainable? Corporate America is growing much faster than the US economy. This is partly because of globalisation but also because, put bluntly, capital is beating labour. Wages are not rising at anything like 10 per cent and investors have more reason to be thankful than salaried workers.
According to John Hussman, of the Hussman Funds mutual funds group, corporate profit's share of GDP is approaching 10 per cent. At the beginning of the current earnings expansion, the profit share was less than 5 per cent. He says that, since 1962, whenever the profit share has exceeded 6 per cent (with low unemployment), earnings growth over the following three years has averaged only 2.1 per cent. He suggests that investors should brace themselves for "surprising" wage inflation and weak earnings growth.
But close examination of S&P earnings suggests the headline figures are slightly misleading.
Abhijit Chakrabortti of JPMorgan points out that insurers, buffeted by hurricanes late last year, and blessed by benign weather in 2006, increased their earnings by more than 152 per cent, accounting for a huge 43 per cent of total quarterly earnings growth. Without insurers, growth would have been only 13 per cent. So it seems investors should give thanks for various acts of God. The pilgrims would have approved.
Copyright The Financial Times Limited 2006
Published: November 24 2006 02:00 | Last updated: November 24 2006 02:00
Yesterday Americans paused to count their blessings.
Thanksgiving is a tradition that goes back to the pilgrims who helped to found the country. So why should investors in the US be thankful?
This year they have more blessings to count than usual. Corporate America continues to produce profits at a prodigious rate and the S&P 500 has gained 15 per cent since July.
The strength of third-quarter results is impossible to dismiss. With the peak weeks of earnings season now over, year-on-year earnings growth looks set to be almost 19 per cent, way in excess of the 15.3 per cent growth predicted when the quarter began, and the 13th consecutive quarter when earnings grew by 10 per cent or more. Companies also surprised forecasters by a greater margin than they had typically done in the past.
Is this sustainable? Corporate America is growing much faster than the US economy. This is partly because of globalisation but also because, put bluntly, capital is beating labour. Wages are not rising at anything like 10 per cent and investors have more reason to be thankful than salaried workers.
According to John Hussman, of the Hussman Funds mutual funds group, corporate profit's share of GDP is approaching 10 per cent. At the beginning of the current earnings expansion, the profit share was less than 5 per cent. He says that, since 1962, whenever the profit share has exceeded 6 per cent (with low unemployment), earnings growth over the following three years has averaged only 2.1 per cent. He suggests that investors should brace themselves for "surprising" wage inflation and weak earnings growth.
But close examination of S&P earnings suggests the headline figures are slightly misleading.
Abhijit Chakrabortti of JPMorgan points out that insurers, buffeted by hurricanes late last year, and blessed by benign weather in 2006, increased their earnings by more than 152 per cent, accounting for a huge 43 per cent of total quarterly earnings growth. Without insurers, growth would have been only 13 per cent. So it seems investors should give thanks for various acts of God. The pilgrims would have approved.
posted by Carlos T Mock @ 8:12 AM
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