This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Despite Mood, Economy Is Waking Up

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- In our view, the bull market likely continues with gusto throughout 2012, with strongly positive equity returns. Sentiment remains dour -- investors continue to fear an imminent eurozone collapse, too much debt, a deteriorating U.S. economy, political turmoil, etc.

However, we view today's dour sentiment as an additional positive factor helping boost stocks in 2012, as even moderately better-than-expected outcomes should result in an upside surprise. And in our view, there's ample room for upside surprise.

Overall, economic fundamentals are stronger than many appreciate. The following are just a few factors highlighting underappreciated economic strength.

Corporate Earnings and Sales Growth

U.S. firms reported year-over-year operating earnings growth for the eighth consecutive quarter in the third quarter of 2011. Corporate profits are now at all-time highs, and expectations are for continued growth in 2012 -- firms are lean, healthy and growing. Preliminary fourth-quarter data shows, of the 461 S&P 500 companies that had reported earnings as of Feb. 24, 63% beat expectations and 10% met expectations. Aggregate earnings-per-share growth is estimated at 9.4% year over year -- and should it hold, would mark the ninth straight quarter of overall earnings growth.

Follow TheStreet on Twitter and become a fan on Facebook.

While earnings growth can be a result of cost-cutting measures, as is common in the early stages of an economic recovery, we are well past that now. Year-over-year revenue also grew for the eighth consecutive quarter in Q3 2011, reflecting rising demand and a healthy business environment. For the 454 firms reporting Q4 revenue through Feb. 24, aggregate revenue-per-share growth is estimated at 7% year over year, according to Thomson Reuters. Firms are bringing in money just fine.

Further, corporate profits per employee are up 140% since the Q4 2008 trough. For those fearing a new recession, recessions historically tend to happen in environments of falling corporate profits per employee (not rising) as businesses lose sales faster than they can cut workers. (See the chart below.)

U.S. Corporate Profits Per Employee

Source: Thomson Reuters, US Bureau of Economic Analysis, as of 09/30/2011

Leading Economic Indicator Index

The Conference Board's Leading Economic Indicator index continues to rise. The index derives its value from 10 key variables, including employment data, spending results, manufacturing and consumer sentiment. In the last 50 years, a recession (as indicated by the gray areas in the chart below) has never closely followed a rising LEI trend.

Leading Economic Indicators Index

Source: Thomson Reuters


1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs