CORPORATE PROFITS GROWTH
LEADING INDICATOR

CPGLI Performance

The CPGLI aims to predict next quarter’s growth in the USA Corporate Profits.

There is 90%+ long term historical correlation between the profits trend and the market (S&P 500 index) measured over 60+ years. Over shorter periods the correlation can widely fluctuate.

Hence, the CPGLI profit outlook may imply a view about the broad market direction and corresponding equities asset allocation and leverage. 

The CPGLI signals future direction and strength of the profits growth at four levels: “weak”, “slow”, “up” and “up strong”. It does not set target values.

Availability of actual data for Corporate Profits is always one quarter behind S&P 500 data. Hence, the outlook applies to current quarter’s Corporate Profits and next quarter’s S&P 500 index.  

For example, the outlook issued at the end of 1Q (March) is for 1Q Corporate Profits (which will be known in June by the end of 2Q) and for 2Q S&P500 index.

This is the reason the CPGLI outlook’s performance is presented in two tables: one for Corporate Profits and the other for S&P500 index outlook.

The gray bars below the graph marked "weak", "slow", "up" and "up strong" symbolize the strength of profits growth predicted by our quarterly CPGLI Outlooks.

CPGLI Outlook (gray bars below chart)
predicts quarterly profits growth;
S&P 500 market index follows profits uptrend



2012 4Q CPGLI Outlook updated on Nov 30, 2012

Linking CPGLI PROFITS Growth Outlook to DYNAMIC Asset Allocation & HEDGE FUNDS NET EQUITIES POSITION

Historically, measured over more than 60 years, there was a 90%+ correlation between the USA NIPA Corporate Profits and S&P 500 index. Over shorter periods the correlation fluctuated reflecting the fact that market is not only driven by the economic fundamentals - such as profits growth - but also by other factors including investors' emotions, perceptions and expectations of the future.

Assuming that the correlation between market and profits trend should hold in the future, the USA CPGLI Corporate Profits growth outlook implies the USA equities dynamic asset allocation, investment leverage and net equities position for macro hedge funds decisions as follows:

Important Warning: GB Capital does not and cannot guarantee that:

› the strong historical long term relationship between profits and market will always hold in the future over every quarter,

› CPGLI Outlook will always accurately predict next quarter's profits growth; quite the opposite: it is certain it will not always be right.

There is a degree of risk in directly applying the CPGLI Outlook corporate profits research to investment decisions. The CPGLI Outlook should only be treated as a source of macroeconomic research about the corporate profits for general use by the investment professionals. It is recommended that other risk management techniques are used in parallel - see our Legal disclosures.

CPGLI Outlook performance – Corporate Profits

The CPGLI Outlook correctly predicted longer periods of stronger USA Corporate Profits growth even though the quarterly forecasts were not always accurate.

The profits rose 36.2% during the aggregated “Up/Up strong” outlook periods. 

Earlier the 2006-07 period of “slow/weak” outlook recorded overall negative (4.7%) profits growth.

CPGLI Outlook performance – S&P 500

The CPGLI outlook correctly predicted a strong S&P 500 recovery in 2009-2010 and a sideways direction in 2007-early 2008, leading to the first leg of the 2008 market crash.

It missed Lehman Brother’s bankruptcy in September 2008 which marked second leg of the Global Financial Crisis. 

The market has been slowly catching up with the strong profits growth and so far delivered 7.8% cumulative return over the "Up/Up Strong" outlook for the period 2008 2Q - 2012 4Q.

The 2007-2009 Global Financial Crisis was a true test of the CPGLI outlook performance

› In November 2007, CPGLI indicator issued strong SELL SIGNAL at the market TOP.

› In March 2009, CPGLI indicator correctly picked the BOTTOM of the market issuing strong BUY signal based on "Up strong" Outlook for V-shape recovery in corporate profits. 

› In May 2009 it correctly signaled beginning of the V-shape economic recovery.

› Then, for the next 4+ years in quarterly outlooks, the CPGLI indicator correctly predicted strongly growing profits and rising with it broad stock market.

› The indicator, however, did not predict the Lehman Brothers bank collapse in September 2008.

› The Special Situation Notes in April and May 2009 correctly signaled a sharp turnaround in the financial stocks.

› In November 2011 CPGLI Outlook predicted positive for stocks stabilization of the Eurozone.