Our earnings waterfall analysis for the fourth quarter tells a story consistent with the entirety of 2018: earnings growth was fantastic, boosted by the twin drivers of strong sales growth and a lower corporate tax rate. Chart 1 spotlights the quarter’s tally, which produced a healthy sales growth number despite some economic weakening.
Growth Is Re-emerging: A recurring theme in recent Leuthold Group research is the apparent turn in corporate profits and a general improvement in business results. To monitor corporate sales/earnings trends, we measure the number of companies reporting higher quarterly sales and earnings than a year ago, versus companies reporting lower sales and earnings.
We’ve said before that one of Wall Street’s great inventions is the “forward operating earnings” estimate for the S&P 500, because it results in a P/E ratio that invariably sounds reasonable (if not outright cheap). But this already-misleading EPS metric has become even more so in recent years because of the proliferation of non-GAAP “adjusted EPS” reporting practices.