Everything is awesome - The earnings season edition:
Bottom Line: Through Friday 91% of companies had reported their results for the third quarter that included hurricanes, Harvey, Irma and Maria. By the end of September thoughts of sustaining a 3% growth economy for the first time since 2005 were all but gone. So were the ideas that we'd have significant earnings growth for American companies. Both of those proved to be, happily, false.
First, we had the exceptional news of a 3 percent growth economy and lowest unemployment rate in nearly 17 years, despite more than $120 billion in negative economic impact from the hurricanes to the economy. Then the earnings estimates which had be slashed to just 3% growth for the quarter started be been blown out of the water (or hurricanes as the case may be). Earnings momentum and results have improved each of the past five weeks. Last week earnings for companies that'd reported had grown by 5.9% year over year. Here's where we are to start this week with more than 9 in 10 companies having reported:
91 percent of companies have reported
74 percent have reported positive earnings surprises and 66 percent have topped sales targets
Earnings growth has been 6.1 percent!
It's now a given that companies will have doubled the growth estimates from the street coming into reporting season. That's great news and a powerful reason why stocks have been able to maintain near record levels over the past week. As we're close to closing the door on earnings season, we'll be looking for future catalysts. The anticipation is that it'll be tax reform. But will Congress deliver? That's a big if and will likely determine if there's any additional upside from here over the short run. Without it, it's hard to imagine that stocks would have much additional upside over the short run. That was evidenced by stocks having their first negative week in over a month last week when the Senate's plan was released calling into question if meaningful tax reform will happen anytime soon. More to come...