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Forecasting Earnings Using The Business Cycle

The Macro Institute's Weekly Economic Primer

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The Macro Institute
June 29, 2026

Don’t have time to watch the whole video? Here’s 5 Key Takeaways:

🔹Earnings Growth Is Hitting Historic Levels: S&P 500 earnings growth is hitting levels rarely experienced. This is only the sixth time in the last ~35 years that S&P 500 forward EPS growth has broken 20%.

🔹LEIs Lead Reported Earnings By Nine Months: Reported earnings follow the path laid by the business cycle. This makes leading economic indicators a great tool for predicting changes in reported earnings.

🔹The Cycle Leads Forward EPS By Three Months: Forward EPS can also be forecasted by leading indicators, but with a much shorter lead time of about three months.

🔹Revenues Are A Function Of Economic Growth: Zooming in on the components of EPS, sales growth tends to ebb and flow with economic growth and can therefore also be forecasted using LEIs.

🔹Margins Are A Function Of Monetary Policy: Profit margins are strongly influenced by the path of interest rates, which gives the Fed a lot of say in the future earnings of publicly-traded companies.

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Macro Data Center

The Macro Week Ahead

📆 Last Week’s Data Key Takeaways

🔹 PCE Inflation Hit 3-Year High As Energy Kept Biting: Headline PCE ran at a 4.1% annual rate in May, the highest since April 2023. Core PCE rose 0.3% for the month and 3.4% annually, which was the highest core reading since October 2023. Personal income climbed 0.7%, well above the 0.4% forecast, with the savings rate rising to 3.0%.

🔹 GDP Upward Revision Came From Import Math: Q1 GDP was revised up to a 2.1% annual rate, an upward revision of 0.5 percentage point from the prior estimate, driven mainly by a downward revision to import growth to 11.8% from 21.1%. Importantly, imports are subtracted from GDP calculations.

🔹New Home Sales Cratered To A 13-Month Low: New single-family sales fell 7.3% M/M to a seasonally-adjusted annual rate of 580,000 in May. The inventory overhang is the bigger story, as new houses for sale rose to 496,000, which is a supply of 10.3 months at the current sales rate, up from 9.3 months in April.

🔹 Long-Run Inflation Expectations Snapped Back: University of Michigan Consumer Sentiment was revised up to 49.5 in June from a preliminary 48.9, recovering from May's all-time low of 44.8. The real news was long-run inflation expectations fell more than expected to 3.3% from 3.4% in the preliminary estimate and 3.9% in May.

🔹 S&P Flash PMI Hit A 4-Year High: The June flash composite rose +0.7 points to a 5-month high of 52.2, with manufacturing surging to 55.7, the highest since May 2022. The labor data flashed warning signs, as employment fell for a second straight month, with manufacturing job cuts the worst since the COVID lockdowns.

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