Earnings Optimism
 One of our reservations on the sustainability of this market rally over the past couple of quarters has been the flat earnings revisions. In other words, global markets are up over 20% but earnings estimates have remained flat or tilted down slightly. More often than not, markets trend in the same direction as earnings revisions. Earnings get revised up when companies raise guidance and/or analysts become more encouraged about growth prospects. That is a good thing for markets. Obviously, downward revisions are bad. Yet estimates have remained very flat as markets marched higher, a challenging combination.
Given the importance of earnings, a good earnings season is a welcome boost to markets. The question is whether this good season will translate into rising revisions for forward estimates. So far, it has not. Global earnings from the earlier chart show 2024 still trending ever so slightly lower and 2025 more stable to ever so slightly higher. Looking at just the U.S. market, it is rather similar. 2024 earnings are forecast at $243, the same number as of January 1st. 2025 looks a bit better, with consensus estimates of $270 rising to $275 so far this year.

Digging down to the sector level, it seems just a couple of sectors, including Energy, Info Tech, and Communication Services, are lifting the overall market earnings. Energy makes sense as commodity prices have been trending higher, tech too, given the excitement spending around AI. Communication Services is an odd one on the surface but is mainly Alphabet. Traditional telcos are seeing estimates fall.
Wages and other corporate input costs are also a negative for future earnings. On a positive note, wage pressures have been trending lower. The Atlanta Fed Wage Growth Tracker peaked at 6% in 2022 but has been steadily falling for over a year down to 4.7%. That is not bad, considering that historical norms were in the 3- 4% range.
Despite these headwinds, there are some very positive factors as well. U.S. earnings tend to be highly correlated to manufacturing activity. S&P 500 year-over-year earnings growth tracks PMI (Purchasing Managers survey) with a six -month lead. Which means the uptick in PMI data we are seeing today bodes well for earnings growth in the coming months. 
 The final good news may be inflation. Inflation sucks; it is a tax on your future spending power or the value of your wealth. But for earnings, inflation is good. It means companies are able to raise prices, and when Producer Prices (PPI) are rising slower than Consumer Prices (CPI), that is an earnings-healthy combination.
Final Thoughts
Earnings probably have more going for them than against them these days, which is a good news story. Hard to say if it will be enough to maintain the gains of the past few quarters, but it certainly would be helpful. The U.S. earnings season is halfway through the Q1 season and it has been good. Hopefully this trend persists. And, hopefully, the Leaf’s playoff trend doesn’t.
— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.
The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.
This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.
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