Earnings: The trend is your friend – but which trend?

JSE All share index earnings are highly cyclical. And the cycle is one of high peaks and deep troughs in the growth rate ofearnings, as the illustration of the cycle of inflation adjusted or real earnings growth for the JSE since 1961 shows.The cycle has been particularly vicious lately. After a surge in earnings growth after 2004, which was sustained until 2008, thegrowth cycle turned very negative in 2009-2010. Real earnings at the bottom of the trough in late 2009 were some 40% lower thana year before. This represented the deepest trough in the JSE earnings cycle since 1960. Real JSE earnings growth turnedpositive again late in 2010 and consensus forecasts would have them grow by about 25% in 2011.