The U.S. stock market is off to a strong start this year, and perhaps the biggest reason is the unprecedented expectation for big gains in earnings. This week is critical for those expectations as more than 100 companies are set to report, which could set the tone for the next several months. We have no history with companies beating sets of forecasts this aggressive.
To understand why, consider the chart below, which shows the “blended” median growth rate forecast for fourth-quarter 2017 operating earnings for the members of the S&P 500 Index. Blended means that as a company reports results, the estimate is replaced with the actual results. The last point on the chart is Friday, of which 53 were actual results and 447 were estimates. Before the quarter ended on Dec. 31 (gray vertical line) it was 500 estimates and no actual results.
