U.S. Economy Back on Track?
The data is showing that the U.S. economy is back on track following slow growth in the first quarter, and the first-quarter earnings season was a positive development. It all means that the Fed is likely to raise rates when it meets in June.
Retail sales rose 0.4% in April, and the University of Michigan Consumer Sentiment Report made a four-month high. Add in 211,000 jobs created last month, plus the other readings, and the Atlanta Fed’s GDPNow forecast for the second quarter is 3.6%, as of May 12.
University of Michigan: Consumer Sentiment since 1980
Source: Bloomberg, 5/16/17.
The first-quarter earnings season showed 75% of S&P 500 firms beating their earnings estimate and 66% beating on sales, with 91% of the index constituents having reported, according to FactSet. Earnings per share (EPS) growth appears on track to be up 13.5% versus the same quarter a year ago.
In recent years, U.S. and global equity returns have been driven mainly by multiple expansion, which you can see here in orange. Going forward, we expect returns to be led by earnings per share growth and dividends.
In Recent Years, Equity Returns Have Relied on Multiple Expansion
Sources: Bloomberg and Epoch Investment Partners, 12/31/16. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
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Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability. Dividend yield is a financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Profit & Earnings (P&E) expansion is a useful ratio and can help provide insight about a variety of aspects of a company’s financial performance.
The S&P 500 Index is widely regarded as the standard for measuring large-cap U.S. stock-market performance. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
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