Last week, we sent out a chart on inflation-adjusted earnings which highlighted how earnings have come down over the past few months. So are earnings poised to take off? To help answer that question, today's chart compares S&P 500 earnings with the capacity utilization rate. What does the chart show? Since 1970, changes in the capacity utilization rate have correlated well with earnings. Notice how capacity utilization has bottomed (and peaked) 6 to 15 months before earnings. With capacity utilization having hit a 'soft spot', it may be a while before earnings move up in a significant way. Stay tuned...
Notes:
- Capacity utilization refers to the percentage of total US industrial capacity that is being used at a given point in time.
- S&P 500 earnings are 'as reported' trailing 12-month earnings.
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