Global earnings most important chart for market next year

In a year when equities across the world have rallied in synchrony, Ryan Detrick of LPL Financial has identified what could be the most important chart for the market next year, as it could signal that the global rally is far from done.

With the S&P 500 up 20 percent this year, on pace for its best year since 2013, emerging markets up 35 percent and Europe’s STOXX 600 index up 8 percent, many market watchers have applauded 2017 as the year of global growth.

A big driver of the global markets rally has been earnings. Detrick, who is a senior market strategist, says that based on one chart, the global earnings outlook is still positive for next year.

“We’ve seen a resurgence of global earnings in 2017 with the S&P 500, emerging markets and developed markets all positive … [that’s the first time it’s happened] since 2010,” he said Thursday on CNBC’s “Trading Nation.”

“Fortunately we’re looking at all three of them being positive again next year,” added Detrick.

And even though Detrick says there could be more volatility in 2018, he also sees signs of strong fundamentals in the U.S. and abroad that he believes validates the momentum of economic growth around the world.

More specifically, he points to tax reform and the rally in industrial metals such as copper, up 31 percent this year and seen as an indicator of industrial demand, as two factors that could uphold earnings growth in 2018.

“We definitely think a lot of it could be priced in so far what we’ve seen this year, and we could have some more rocky volatility next year,” said Detrick. “But all in all, we just upped our forecast for earnings from about $143 a share to just under $150.”

“As we look out 12 to 18 months, there are still a lot of positives,” he added. “We’ve got tax reform, which should continue to drive markets higher.”

Within U.S. markets, Detrick says small-caps and financials are the best buys for investors, thanks to tax reform. He also encourages investors to look at emerging markets thanks to their moderate valuations, and he predicts they will continue to grow in 2018.

As of late Friday morning, the S&P 500 was only slightly above breakeven for a week and aiming to end the year with six straight weeks of gains, which it hasn’t done since 1971.