Stock analysts around the world are in the midst of a corporate earnings upgrade spree, recording a net 41% increase in positive revisions last week, the largest on record dating back to when Citi began collating records in 2000, according to the bank’s global equity strategy team.
“All major markets posted net upgrades week-on-week. The US recorded its best weekly revision since May 2000, possibly due to tax-reform related upgrades,” says Citi, adding that positive revisions have now been recorded in each of the past 14 weeks.
The swathe of upgrades also goes someway to explaining why global stocks jumped out of the gate at the start of 2018, logging an increase of over 2.5%.
This chart from Citi shows its Global Earnings Revisions Index (ERI) overlaid against the MSCI All Country World Index.
Citi says cyclical sectors such as financials, energy and industrials led the upgrades during the week, seeing its Cyclical Sectors Earnings Revisions Index equal the previous high struck in September 2009 during the early stages of the recovery from the global financial crisis.
At 12%, it also says the average consensus analyst forecast of global earnings per share growth in 2018 “looks achievable according to our GDP-driven model”, especially with the bank’s regional strategists forecasting “another year of synchronised earnings growth”.
While this is undoubtedly welcome news for the stock market bulls among you, Citi says that there may be something in the data for contrarian investors too, noting that high ERI levels are “usually seen at the start or end of market cycles”.
However, before you call your broker to load up on shorts in anticipation of a stock market reversal, Citi says that other indicators — such as its Bear Market Checklist — suggest that it is still too early to call the end of the bull market in stocks just yet.