At the end of July we first looked at how 2Q earnings were impacting forward EPS estimates of companies in the Dow Jones Industrial Average (DIA) (here). Now that the earnings cycle is complete we are updating our analysis. Interestingly, since the beginning of 2Q 2012 earnings season there has been a divergence between the price action of the Dow Jones Industrial Average and the forward EPS estimates of companies in the index. The Dow Jones Industrial Average is up 2.5% since the release of Alcoa's (AA) 2Q results on July 9, but the median EPS estimate for the September quarter is down -3%. The EPS estimates for the following quarter and next year are also down over this period. The Dow Jones Industrial Average's ability to rally with a backdrop of bad news, in terms of EPS estimates, seems like a positive for the market. Stock prices seem to have already priced-in the expected EPS weakness and there are now other catalysts driving the market higher. In the article below we take a closer look at the forward EPS estimates as well as the valuations of the components in the Dow Jones Industrial Average.
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