Once again, analysts' earnings growth estimates for the firms in the S&P 500 index look "wildly optimistic", says Spencer Jakob in the FT. There is ample scope for disappointment. Analysts expect profits to grow by 33% this year and another 16% in 2011. That would imply a new annual record of $96 a share. This includes the assumption that margins will reach 9.1% next year, a level seen at the peak of the boom years.
And that figure was boosted by a financial sector reporting "artificially high profits during the housing boom". The average over the last 13 years has been 6.8% and "there are few economic series that revert to the mean as reliably as corporate margins". Forecast revenue growth of 6.3% next year also looks a stretch.
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