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Investing Specialists

Recovery's Got Legs

The sub-3% consensus real GDP forecast isn't looking consistent with earnings growth expectations of 30% or more in 2010.

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Although there were a lot of economic indicators this week, news items out of our sector teams were far more interesting and indicative of an economy in the early stages of an extended recovery.

The tech, manufacturing, and even the farming sectors weighed in with some powerful results. In general, there have been large earnings surprises, and for a change a significant portion of companies are reporting revenue surprises as well.

Frankly, the sub-3% consensus real GDP forecast isn't looking consistent with earnings growth expectations of 30% or more in 2010. Based on my discussions with our analyst teams, it seems more likely the GDP forecasts will have to move upward than earnings forecasts will move downward. Furthermore, it's not out of the question that earnings in 2011 could exceed the previous high-water mark for the S&P reached in 2007.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.