27 January 2012

How Good Are Earnings Forecasts?

How good are stock market earnings forecasts?

Well, if you go by our chart below, which we constructed by sampling data we obtained from S&P roughly one-year apart (at the dates indicated) and mostly looking one-year-ahead in time, the answer is: not good at all!

One-Year-Ahead Forecasts of S&P 500 
Trailing Twelve Month Earnings per Share, 2009-2012

The moral of the story: future earnings projections are not necessarily very good indications of actual future earnings!