The biggest increase in profits in more than a century is telling investors that this is no time to sell stocks, even after the Standard & Poor's 500 Index rallied 97%.
S&P 500 earnings are poised to surpass the 2007 peak of $90 a share in the third quarter after surging from $7 in March 2009, the quickest recovery since at least 1900, according to data from S&P and Yale University's Robert Shiller compiled by Bloomberg. The gap between projected 12-month profits and average earnings over the last 10 years is set to widen the most since 1951, according to Bloomberg.
Bloomberg quotes PNC Wealth Management, Federated Investors Inc. and ING Investment Management, which together oversee about $1 trillion, who say consumer spending will sustain the recovery after government stimulus helped lift profits from the lowest level since the Great Depression. While earnings will slow in the second half, stock purchases by investors who missed the S&P 500's advance will fuel gains, according to Leuthold Group LLC.
"People are more comfortable with the recovery than at any time over the last couple of years," Doug Ramsey, the Minneapolis-based director of research at Leuthold Group, told Bloomerg. "That's typically when retail investors regain courage," and may spur a rise of up to 25 percent in the S&P 500 during the next 18 months, he said.
