By: Dividend Sensei
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Weekly Economic Data Review
Overall it was a very solid week for the economy and the market, which rose 0.7% in the past five days.
Of course with earnings season starting to kick into high gear the economic fundamentals took a back seat to the earnings reports that should be driving the market.
As of the end of last week 19% of S&P 500 companies had reported, with 73%, and 77% beating earnings and sales expectations, respetively.
This is pretty great news, if the trend can hold through the rest of earnings season. That’s because, while EPS can be managed through various account gimicks, sales can’t.
In addition, strongr than expected sales would point to strong consumer spending, which is the lifeblood of the US economy.
Overall, the blended average thus far has been for 5% sales growth and 7.2% EPS growth, which is expected to accelerate in the second half of the year.
Overall for the entirety of 2017 analysts are now expecting 5.4% revenue growth and 9.3% EPS growth, which gives the S&P 500 a forward PE of 17.8.
While that may be high by historical standards, in a low rate environment it could allow for continued 10% to 11% market performance for some time, even without tax reform (which might add another year to the bull market).
Meanwhile on the economic front solid news, especially from stronger than expected building permits and housing starts, has caused both the Atlanta and New York Feds to upgrade their projected Q2 and Q3 GDP growth estimates.
New York Fed GDP NowCast: 2.0% for Q2 2.0% for Q3 (Q2 up 0.1% Q3 up 0.2%)
Atlanta Fed GDPNow: 2.5% for Q2 (up 0.1% from last week)
Now, about 2% growth through the rest of year isn’t exactly thrilling news, but it’s certainly better than declining growth and a rising risk of recession.