Citi Earnings Revision Index Explained: Manufacturing Cycle Index vs. Corporate Earnings

Since April, companies have been releasing their Q1 financial reports. Regarding EPS, approximately 77% of S&P 500 companies continue to exceed expectations, fueling momentum for the stock market. What is the market’s outlook on future profitability post this earnings season? Can expectations continue to increase and drive stock prices higher? In this Spotlight article, we aim to address these questions.

What is the Citi Earnings Revision Index?

The Citi Earnings Revision Index, calculated as the "percentage of analysts raising their EPS estimates for listed companies” minus the "percentage of analysts lowering their EPS estimates for listed companies,” is a valuable indicator for assessing corporate profit expectations. A positive index value suggests analysts generally hold optimistic views on corporate earnings outlooks, while a negative index value indicates pessimism.

MM Manufacturing Cycle Index vs. Citi Earnings Revision Index

A close examination of the chart reveals a strong correlation between the Citi Earnings Revision Index and the Manufacturing Cycle Index trend. The manufacturing cycle reflects short-term economic cycles. During expansionary phases of the manufacturing sector with robust demand, the market tends to be optimistic, driving the Earnings Revision Index upward. Conversely, during recessions characterized by weak demand, market expectations turn pessimistic, leading to a decline in the Earnings Revision Index.

MM Takeaways

Observing the recent manufacturing cycle, one can see that it’s still on an upward trajectory. Historically, upward trends in average last 1.5 to 2 years. Under favorable conditions, the current upswing is expected to persist, at least until the end of 2024. This upward trend will likely bolster the Citi Earnings Revision Index, lending further impetus to the stock market.

??How long will the ongoing bull market last? Share your insights!