The Forecast Also Rises

20/04/2012 at 6:05 pm 1 comment

“We are seeing light recovery blowing in a spring wind.”

That was how the IMF’s Christine Lagarde – clearly more of a poet than her predecessor – described the Fund’s latest World Economic Outlook report, out this week. The big news was that its growth forecasts have been revised – gasp! – up.

Of course, the report is laden with the usual caveats, and understandably so. After all, the commentariat tells us solemnly that when it comes to bond yields, 6% is the new 7%, and that borrowing in Spain has thus become unaffordable. (This is moot. But having failed to bankrupt a country with no deficit problem – Italy – perhaps the market will succeed in respect of a country with no debt problem instead.)

Nonetheless, seeing an important economic forecast revised up is encouraging. Unsurprisingly, given the strong data, one of the key revisions was in the case of the US, where projected growth of 2.1% for this year is 0.3% higher than the IMF was forecasting in January. And that brings us on to another type of prediction.

Amid the gloom and woe of the second half last year, Wall Street analysts slashed their expectations for stock market earnings. At one point, reported earnings for the season that has just begun were expected to fall.

The consensus as reports began was less bearish, with average EPS growth across the S&P 500 anticipated to reach about 1%. But with a quarter of the index’s constituent companies having announced their results, the outturn so far is running at 7.2% (6.2% excluding financials – some of the big banks have been doing especially well).

Over 80% of reports have beaten expectations. Forecast earnings growth for the index as a whole this quarter has now risen to over 3%.

Mindless optimism is of no more use to the careful investor than the hysterical pessimism that has dominated of late. But it is surely not imprudent to observe that, even with renewed panic over Europe, proper gloom is becoming harder to sustain.

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Chinese Slowdown Sell In May?

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  • 1. A Thousand Cuts « The Blog @ Vigilant Financial  |  06/07/2012 at 4:18 pm

    […] and a Chinese slowdown remain; and of course as the IMF just reminded us, widely-followed economic forecasts that go up can also come down. Combine this gloomy background with the fact that the S&P GSCI commodity […]

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