Fisher Investments Editorial Staff

Positive Profits

By, 06/03/2010

Story Highlights:

  • Globally, EMs continue to lead the economic recovery, but growth isn't limited to developing nations.
  • Q1 2010 US corporate profits increased +30% y/y for just the sixth time since the data series began.
  • Most signs point to a strong and sustainable recovery in developed and developing nations alike, including—and most importantly for stocks—continued strong earnings growth.


Since the economic recovery's inception, we've often noted strong Emerging Markets growth has led the way. To be sure, countries like China and Brazil reported gangbusters Q1 growth, even as a number of their smaller peers similarly beat expectations on double-digit gains. This week, India joined the party with 8.6% year-over-year (y/y) GDP growth. But for all the attention on EM growth, we don't mean to neglect positive news in the developed world—easily lost amid rather more sensational news about oil spills and a potential (though increasingly unlikely) Greek default.

While it's true Europe is struggling with tepid (albeit positive) growth and a sovereign debt crisis, North America's had some good news recently. Canadian GDP rose 6.1% annualized in the first quarter. And though Q1 2010 US GDP was recently revised down, it was a small revision to a still-healthy 3.0%. Further, aggregate US corporate profits, up dramatically over last year, showed a broad rise across industries.

We've noted before just how strong earnings have been in the last couple quarters—showing rapid growth y/y and widely outstripping analyst expectations. But particularly remarkable, as of Q1 2010, corporate profits increased 30% y/y for the second consecutive quarter. Yearly earnings growth over 30% has only happened six times since the series began in 1950—and usually comes during a strong economic recovery, historically boding well for stocks looking forward. Of the six instances of +30% y/y aggregate profit gains, the S&P 500 went on to rally between +10% and +33% over the next 12 months. The lone exception was an even return over the 12 months following the 1959 y/y profit peak.

Most signs continue to point to a strong and sustainable global economic recovery, including—and most importantly for stocks—very strong earnings growth.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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