Profits Prompt Growth Revision And Makes Recovery Look V-Shaped (INTC, JPM, UBS)

Bloomberg reports that prompted by the surge in profits, economists are revising their growth estimates and it seems now that the recovery will be V-shaped. Joseph LaVorgna, chief U.S. economist at Deutsche Bank (NYSE: DB) in New York, said, “Companies have a lot more capital, and they’re going to deploy it for equipment and hiring rather than sit on it. It’s quite possible the economy produces a recovery significantly stronger than people anticipate.” According to LaVorgna, the U.S. will grow 4 percent this year.

On April 13, Intel Corp. (NASDAQ: INTC) raised its estimates for spending on research, development, mergers and acquisitions this year by $600 million to around $12.4 billion. On April 14, JP Morgan Chase & Co. (NYSE: JPM) said that it plans to hire almost 9,000 employees in America. In the light of these events, growth forecasts are seeing a revision. Barclays Capital has raised its forecast for growth this year to 3.8 percent from 3.5 percent on April 16. UBS Securities (NYSE: UBS) increased its growth prediction to 3.3 percent from 3 percent on April 9. It must be mentioned here that the economy had contracted 2.4 percent in 2009.

Mark Zandi, chief economist at Moody’s Economy.com, said that thanks in part to rising profits, the odds of the U.S. relapsing into recession have fallen to 15 percent from 25 percent at the start of year. In what Joseph LaVorgna described as a “V-shaped recovery in profits,” earnings for the companies in the Standard & Poor’s 500 Index more than doubled in the fourth quarter.

La Vorgna said that the expansion will feed back into corporate earnings and pave the way for a further rally in the stock market. The S&P 500, which has risen 76 percent to 1,192.13 on April 16 from the low of March 9, 2009, is estimated by La Vorgna to hit 1,325 by year-end.

In an April 12 interview on Bloomberg Radio, Edward Yardeni, president of Yardeni Research Inc., said, “We’re looking at an extremely broad bull market.” The surge in profits has left companies with an abundance of cash. According to the Federal Reserve, liquid assets at non-financial, non-farm businesses rose to a record $1.8 trillion at the end of last year from $1.48 trillion at the end of 2008. “Businesses, broadly speaking, have the financial firepower to go out and invest and hire,” Zandi said.

According to April’s Bank of America Merrill Lynch Survey of Fund Managers, forty-three percent of global investors want companies to use the cash flow to increase capital spending. The investors who have been polled collectively manage about $546 billion.