For some perspective on the all-important earnings environment, today’s chart illustrates ‘as reported’ S&P 500 earnings growth (i.e. 12-month rate of change) since 1940.
There are a couple of points of interest. For one, earnings growth has tended to peak in the 20 to 40% range and trough somewhere in the -10 to -20% range. At least that was the case up until this millennium. Since the dot-com crash (i.e. the 2001 – 2002 timeframe), earnings growth volatility has increased dramatically.
In fact, the post-financial crisis spike to 793% is not even shown on today’s chart so as to allow the rest of the data to remain visible (i.e. not flattened out). It is worth noting that this historic post-financial crisis earnings growth spike is due in large part to the fact that earnings came in so low as a result of the financial crisis. Currently, earnings growth has just moved into positive territory but remains well below average.
Where’s the Dow headed? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.