Picturing The Gap Between Hope And Reality In Stocks

Companies will have to increase profit margins to all-time records in order to meet estimates, is the message of utter hope embedded in the forward expectations for earnings and sales growth. As Bloomberg reports, Oppenheimer's Andrew Burkly warns this is "a scenario we view with ongoing skepticism." As the chart below shows, the gap between growth in sales (top-line) and earnings (bottom-line) is set to explode in the next few quarters as even the most exuberant analsyst struggle to upgrade their GDP-riddled sales forecasts and are thus forced to make up whatever margins they need to reflect extrapolated buy-and-hold targets for their stocks. The margin for US companies during Q4 was the highest since 1950 and finding ways to reduce costs and make workers more productive will be an "increasing challenge...earnings growth will have to be pared."



Chart: Bloomberg


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