Financial news on the economy speeds toward us with black and white sureness. No subtleties, no grays or maybes come with the sharp, short announcements in the popular press: initial unemployment claims rose precisely so much last week. Producer prices fell exactly a certain percent last quarter.

Headlines shout the early numbers, we react, then we forget them and pay no attention as all such numbers are corrected. But the numbers in our regular news diet are stand-ins. They are inexact, despite the decimal points that imply otherwise… mostly advance, preliminary calculations. Several accounts that go into the GDP, for instance, are revised about four months after the forward numbers are issued for the latest quarter. The whole GDP is revised and corrected again a year later when more data in more categories are complete.

And every July, the Commerce Department does a three-year-period revision on old numbers.

Sometimes good news is lost in this process, so I am happy to let you know that corporate America has done a bit better than we thought according to the latest midsummer overhaul.

As a result of this review, the Commerce Department now calculates that corporate operating profits for the first half of this year are 4% higher than it originally thought.

And this means good news for you: the stock market may be more undervalued than we thought. And if that’s the case, a bull market should be getting closer.

Morgan Keegan economist Dr. Donald Ratajczak, follows these revisions as he keeps a running tally of how much he thinks the equity (stock) market is over- or undervalued based on earnings.

Ratajczak believes the “value gap,” as he calls it, for the S&P 500 is currently -24% after this latest revision. That’s good reason to buy stocks amid all the gloom, and smart investors will. Astute investors, the kind that really look at balance sheets and income projections, are typically the first to discover a value gap then move in to exploit it. This is the smart money. It knows exactly why it’s buying and what it expects.

This creates early momentum that catches less attentive follow-on buyers, but the cycle really takes off when enough reports of good profits finally create an environment of optimism, one where investors again think strong earnings growth is normal, not merely lucky or exceptional.

But it may be a slow bull if Ratajczak is right. He sees the value gap closing halfway in the coming year, and that should be enough to prompt a pretty good rally by late this winter or early next spring.
Source: Quiet Profits Could Drive a Bull