The ultimate driver of Capital Markets are Earnings. Yes, we can argue about interest rates, currencies, world political and economic cycles, but all of these events are only important in how they change earnings or the growth there of “Earnings”.
Let’s take a look at early statistics from 2017!
Earnings Via our Friends at Factset
This from Factset, one of our favorite data aggregators in their regular weekly report.
- Earnings Growth: For Q1 2017, the blended earnings growth rate for the S&P 500 is 13.6%. If 13.6% is the actual growth rate for the quarter, it will mark the highest (year-over-year) earnings growth for the index since Q3 2011 (16.7%).
Looking closely at the following chart, which is TRAILING earnings, forward looking capital market expectations can be seen. The trailing earnings are actually falling over the last few years, but the forward expectations as noted from the first bullet above are expected to climb more rapidly than the past six years.
So just where are these revenues that are creating accelerating growth coming from?
P/E or the Price to Earnings is the most blunt way to measure the valuation of capital markets. A high P/E might mean markets are overvalued and need to grow into their valuations, or a reversion to the mean reset to a lower level may be in the cards.
From Factset’s estimates above, the current market P/E is about 22 with a normal of 16-17, undoubtedly higher than normal but certainly no guarantee of an imminent reversion down to lower levels.
If the growth estimates mentioned in the very first bullet come through in 2017, much of this froth may be taken out of the capital markets.
Either way, we have your back via our good friend diversification!
There you have it, a nice ‘Earnings Update” … We will be watching closely!
Have a great “Earnings Update” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
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Earnings Review … aka 90 day Treadmill … Revenue the missing link, found?
As mentioned Friday, earnings are the key drivers to asset growth and appreciation. While we do not want to get into the weeds too much on this, continued growth bodes well for continued market appreciation… and maybe growth into the Frothy valuations.. From our fantastic friends at Factset.
Earnings Growth for the Immediate Quarter Looks Great
While a very short term time frame, (3-5 years is our normal time frame) this 90 day treadmill aka earning season chart shows the move upward in expected earnings growth rate. Continued movement at this rate would certainly help us grow into the current valuations.
EPS- Earnings Per Share
Ok, sure the EPS Earnings Per Share- solid line is moving down as time has passed for this quarter, BUT, the scale is very narrow and the amount of lowered expected EPS growth is only slightly less…
Revenue/Sales Growth FINALLY?
Be it the Great Recession lingering effects, demographics, economics, world growth or technological advances, Sales or Revenue has been missing during this economic recovery. In reviewing this chart, Energy, bouncing back from a much lower price just a year ago is making up much of the sales increase, however other sectors are chiming in too. Could this FINALLY be the sales increases we have all been waiting for? Compliments to all company managers for cutting expenses in order to maintain profitability, however there are only so many cuts that can be made. If sales increases continue, this would provide much needed breathing room for managers.
Time will tell! So far its looking good!
Have a Great “Growth in Earnings” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
http://www.jkfinancialinc.com
http://www.street-cents.com
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Posted in Earnings, Earnings Season, Forecast, Investing/Financial Planning, Market Comments
Tagged 90 Day Treadmill, Earnings, Earnings Season, Economy, EPS, Factset