An 18-quarter run of double-digit earnings growth came to an end in the fourth quarter of 2006, thanks to tough year-over-year comparisons in energy, information technology, and health care.
But looking ahead, Standard & Poor’s projects the strongest operating earnings growth in 2007 will come from telecommunications (26.7%), information technology (17.2%), and health care (16.5%). We currently have an overweight recommendation on health care and marketweights on information technology and telecommunications.
During the fourth quarter of 2006, operating earnings for the S&P 500 increased 8.9% to $21.99 per share compared with fourth quarter 2005′s operating per-share earnings of $20.19, the first single-digit increase since the first quarter of 2002. For the year, the “500″ posted record earnings of $87.72 versus $76.45 for 2005, or a 14.7% gain compared with a 13.0% gain in 2005.
Given that the four and half years of double-digit growth were the longest in index history, we think positive single-digit gains are probably as close to a perfect landing as we were going to get.