72% of Companies Reporting Have Beaten Earnings Estimates, How Can Markets Not Go Higher ?

“With 72 percent of corporate earnings exceeding analysts’ estimates, it may be difficult for U.S. stocks not to reach a record in 2013.

The Standard & Poor’s 500 Index is 5.1 percent below the all-time high in October 2007. Profits in the benchmark gauge are forecast to exceed $1 trillion this year, or 31 percent more than when the gauge peaked, according to more than 11,000 analyst estimates compiled by Bloomberg. Even if the price- earnings ratio, now 9.8 percent below the six-decade mean, doesn’t expand, the S&P 500 is poised to recover fully from the financial crisis that began almost six years ago.

Last week, the S&P 500 hit a five-year high as 48 of the 67 companies that reported results exceeded analyst estimates in the biggest expansion in profits since the technology bubble of the 1990s. While bears say the rally will stall when forecasts prove too high, bulls say U.S. companies generating more income than ever will push stocks to new records.

“Corporate America has done an incredible job post- recession,” Leo Grohowski, BNY Mellon Wealth Management’s New York-based chief investment officer said in a Jan. 16 phone interview. His firm oversees $179 billion. “It’s not going to be a return to the ’80s and ’90s where we had people retiring from their day jobs to become day traders. I wouldn’t revert to the historic P/E ratio kind of environment. But the good news is I don’t think we need that to reach a record….”

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