The fight over raising 2017 earnings has just begun
Should 2017 earnings estimates be raised? That's the heart of the debate raging among market participants right now.

Here's the problem: Even before the Trump victory, analysts had raised their 2017 earnings estimates on the simple theory that the economy would continue its modest expansion, and particularly that oil stocks would once again start producing higher profits. The cratering of oil company profits in 2015-2016 was a major reason for the S&P's "profit recession."

Analysts — who employ a "bottoms-up" methodology that looks primarily at corporate fundamentals in estimating earnings, expect the S&P to see a roughly 10 percent gain in earnings in 2017. These estimates are historically optimistic.

But that was before the Trump victory. Analysts and strategists are now struggling to quantify what — if any — boost to earnings we may see in 2017 from fiscal stimulus(infrastructure), tax reform, and fewer regulations.

Stocks are moving on an assumption that this will lead to higher earnings and GDP growth, but no one knows quite how to quantify this because we have no hard numbers.

The fight has just begun, but it's clear there is not a lot of agreement.

Take Bank of America Merrill Lynch, which on Tuesday issued a bullish note on airlines in general, raising United Continental to a "buy" and increasing the price target. Why? Because bookings are improving, but more importantly because airlines have a high sensitivity to GDP growth. On the theory that nominal GDP growth would be higher than the roughly 1.5 to 2.0 percent growth we have seen, BofA raised the revenue estimate to 3.2 percent. While they did not change their earnings estimate, the implication is that earnings could clearly go higher.

The problem, of course, is that market participants have swallowed the "Trump will expand GDP" story hook, line and sinker.