US equities are reporting earnings per share below their 2014 peak despite trading near all-time highs, but profit growth may be about to recover, says Principal Global Investors.
Commenting on data released by the Bureau of Economic Analysis (BEA), Principal Global Investors chief global economist Robert Baur noted that profit estimates have fallen 9.3 per cent since the fourth quarter of 2014.
Additionally, Mr Baur noted most sectors recorded lower profits for the first quarter of 2016, with financial profits down 13.6 per cent, manufacturing down 17 per cent, and retail trade reporting declines of 1.8 per cent.
Industries affected by “the surge in the US dollar and plunge in oil prices from June 2014 and early 2016” were worse off, Mr Baur added, pointing to the machinery sectors 45 per cent reduction in profits.
Despite this, Mr Baur said this trend was likely over, and that year-over-year profit growth “should have easier comparisons as the year progresses”.
“We think the bad profit news, though, has run its course. Those industries most affected by the dollar-oil shock should show improving profits yet this year since the dollar is weaker and commodity prices have rebounded,” he said.
Mr Baur explained that S&P 500 Index quarterly earnings had been trending upwards for the previous two quarters, and this is likely to continue in to the next quarter.