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Bob Carey
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  2018 & 2019 Earnings Snapshot
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View from the Observation Deck  
  1. In light of the passage of the Tax Cuts & Jobs Act, we thought it would be a good time to look ahead to the 2018 and 2019 year-over-year earnings growth projections for a number of major stock indices.
  2. We often note that we believe that corporate earnings determine the direction of stock prices over time, particularly when the major indices are trading at or near record highs.
  3. From 1926 through 2016, the S&P 500 Index posted an average annual total return of 10.04%, according to Ibbotson Associates/Morningstar. The S&P 500 Index posted a total return of 21.83% in 2017. The 10.04% annual gain from 1926 through 2016 is roughly in line with the S&P 500 Index's 2018 and 2019 earnings growth rate estimates (see chart).
  4. With respect to the 2018 earnings growth rate estimates, the indices in the chart with positive double-digit projections are as follows (Highest-Lowest): S&P 500 Energy; S&P SmallCap 600; S&P 500 Materials; S&P 500 Financials; S&P MidCap 400; MSCI Emerging Markets; Nikkei 225; S&P 500; and S&P 500 Industrials.
  5. With respect to the 2019 earnings growth rate estimates, the indices in the chart with positive double-digit projections are as follows (Highest-Lowest): S&P 500 Energy; S&P SmallCap 600; Nikkei 225; S&P 500 Consumer Discretionary; S&P 500 Financials; S&P MidCap 400; MSCI Emerging Markets; S&P 500 Industrials; S&P 100; and S&P 500.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. There can be no assurance that any of the projections cited will occur. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. The S&P 100 Index is a capitalization-weighted index based on 100 highly capitalized stocks selected from the S&P 500 for which options are listed. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Europe Index is a free-float weighted index designed to measure the performance of the developed equity markets in Europe. The Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange.

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Posted on Thursday, January 4, 2018 @ 1:34 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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