My top down corporate profits model indicates strong S&P
500 operating profits for Q1 '06. Yr/yr sales growth
accelerated significantly from late 2005, reflecting a
rebound in output in the wake of the storms plus a
continued broadening of pricing power. Sales were easily
strong enough relative to costs to allow a number of
companies to show higher pretax profit margins. In
addition, oil price realizations also accelerated,
likely producung strong inventory profits for the
integrated producers. About one third of the SP500
companies have reported quarterly results so far, and
surprise has been positive by far.
Varied sets of leading indicators point to a slower
economy in the current quarter. Moreover, profits in
last year's Q2 were strong. So, I'd be a little
reluctant to jack up the estimates for the current
quarter even though The Street may do so. The oil
price will remain difficult to project. Over the
past eighteen months the yr/yr price change has
varied from 15% to 60%.
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