Earnings are the ultimate driver of capital markets.
Growth or the expectation of growth and markets will EVENTUALLY (patience may be needed at times) rise.
Contraction of earnings – think recession- markets will go down, no patience needed on this one, as markets frequently do not waste time in their contraction.
We frequently quote our Friends at Factset as they do a fantastic job of reviewing every detail of earnings each 90 Day Treadmill/Quarter …. too much of course can lead to YAAAWN … we get it, but we have to keep an eye on this stuff even during Summer Doldrums-
Here is a latest update-
- Earnings Scorecard: For Q2 2018 (with 5% of the companies in the S&P 500 reporting actual results for the quarter), 89% of S&P 500 companies have reported a positive EPS surprise and 85% have reported a positive sales surprise.
- Earnings Growth: For Q2 2018, the blended earnings growth rate for the S&P 500 is 19.9%. If 19.9% is the actual growth rate for the quarter, it will mark the second highest earnings growth since Q3 2010 (34.1%).
- Earnings Revisions: On June 30, the estimated earnings growth rate for Q2 2018 was 20.0%. Four sectors have lower growth rates today (compared to June 30) due to downward estimate revisions and negative earnings surprises.
- Earnings Guidance: For Q2 2018, 62 S&P 500 companies have issued negative EPS guidance and 47 S&P 500 companies have issued positive EPS guidance.
- Valuation: The forward 12-month P/E ratio for the S&P 500 is 16.6. This P/E ratio is above the 5-year average (16.2) and above the 10-year average (14.4).
Ok, so earnings are moving along pretty good as managers continue to navigate tax cuts and a frisky consumer.
Our theme of the year “Patience” is still in order – but take a look at this neat chart –
Neat 10 Year Review of Earnings and Market Movement
There is a correlation in earnings and capital market growth- patience and fingers crossed for continued fantastic earnings growth!
Have a Great “Continued Positive Earnings” Day!
John A. Kvale CFA, CFP