As expected, the growth in corporate profits has begun to slow. According to S&P Capital IQ, an information research service, first-quarter 2012 profits are expected to be only about 1 percent above where they were in the same quarter of 2011. For the year as a whole, earnings for the S&P 500 are expected to grow about 6 percent, while they grew 16 percent in 2011.
Of course, it's harder to show growth from a higher baseline, which means a relative lack of growth in profits may not necessarily result in bad news for the stock market. The institutional research firm the Leuthold Group found that of the 16 best years for stocks going back to 1938, they were evenly split between years with growth in corporate earnings and years with declines in corporate earnings. Moreover, in the 16 worst years for stocks, corporate profits rose in 13 of those years.
The bottom line is, corporate profits are expected to be strong in 2012, even stronger than they were in 2011. But it's hard to follow explosive growth with even more explosive growth.
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