Executive Summary

Accelerating Earnings Growth. With earnings reporting season about to begin, Q2 2017 S&P 500 operating earnings are forecast to rise 19% from year-ago levels, an acceleration from the 13% rate of growth in Q1 2017.

Stable Earnings Expectations. Consensus 2017 S&P 500 estimates have been relatively stable — in contrast to the trend in most years, in which earnings expectations are ratcheted down steadily — and have declined only 4% over the past year. A significant majority of companies have been exceeding earnings expectations.

A Decline in P/Es. Given steadily accelerating corporate profit growth, the Price to-Earnings multiple of the S&P 500 has actually declined, so that valuations are not as stretched as they were one year ago.

Revising Expectations Upward. Reflecting the highly favorable combination of accelerating profit growth and improved valuations, we are revising upward our expectations for 2017, and now expect a mid-teens gain in US stock prices, as compared to our previous expectation for a high-single-digit gain.

Figure 1:  A Declining S&P 500 P/E Multiple
Earnings Growth Has Been Exceeding Stock Price Gains

Source: S&P, Cornerstone Capital Group

Our full report is available to clients of Cornerstone Capital Group. Click here for important disclosures.

Michael Geraghty is the Equity Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.