Forecast: Clearing

In forecasting future company profits, there are two Ouija boards and each board comes up with different results.

On the first Ouija board, equity analysts put their hands on the triangular platen and divine the future profits of each company they cover. All the results are then added up for a total “bottom up” forecast for earnings of the S&P 500. For 2010, the analyst Ouija board spelled out $77.54 in profits, a 30% increase over 2009.

On the other Ouija board, a bunch of economists put their fingers on the platen and foretell future profits. This is termed a “top-down” forecast. The economist board says $72.52. This small $5 difference in the two forecasts – a year ago the difference was $40 – is a good indicator of greater clarity looking forward, and a more stable market.

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