It’s earnings season, and we’re right smack in the middle of a deluge of reports.
With over 60% of firms having reported, 69% of S&P 500 companies are topping analyst expectations per Thomson Reuters. That’s slightly above the historical rate of 64%.
You see, companies have been conservative with guidance, and analysts dutifully lower estimates. So we typically see firms top profit expectations.
If we look at how firms are doing versus a year ago, it gets more impressive. Currently, S&P 500 profits are expected to increase by 8.3% versus a year ago. That compares with an estimated 6.1% rise when Q4 ended.
At 8.3%, it would be the best showing since Q3 2014.
Earnings growth continues to accelerate following a four-quarter earnings recession that ended in Q2. Notably, the earnings recession can be blamed entirely on what happened in the energy sector, not a contraction in the general economy. Throw out energy and earnings never turned negative…close, but not negative.
Looking ahead
We may see the first annual double-digit rise in S&P 500 profits in six years, according to current forecasts. Of course, trying to call profits more than a quarter out gets dicey.
What happens to the dollar, oil prices, and U.S. and global economic growth all play into the profit equation. Moreover, will we see a sharp reduction in the corporate tax rate this year, and will firms be able to maintain record profit margins?
Valuations seem high, but earnings and expectations of earnings have historically been the biggest driver is stock prices.