What's up on Wall Street? Your earnings season update for January 29th
Bottom Line: The stock market's record performance since the 2016 election hasn't let up at all in 2018. In fact, the S&P 500 has put up its best start to a year since 1987! Yes, we're off to our best start in 31 years... This isn't built on hope and dreams. It's about improved performance. This story tracks the progress of companies to deliver on earnings expectations so we can determine if the run has been justified and to track fundamental improvement in corporate America and our economy generally.
Here's the scorecard...
Through Friday nearly a quarter of companies had reported their results for the fourth quarter. Coming into the 4th quarter the average economist expected about 2.5% economic growth. On Friday we found out that the initial read on the economy was 2.6%. So, you might imagine that companies outperformed as well.
The expectations were high for America's companies. The average estimate for earnings growth is 10.8% year over year and all eleven sectors of the US economy are projected to have grown. So, are we getting the follow through?
24 percent of companies have reported
76 percent have reported positive earnings surprises and 81 percent have topped sales targets
Earnings growth has been 12 percent
Expectations were high and once again companies are crushing them helping to drive stock prices higher in the process. There's a heck of a lot of room for optimism. I continue to hear a lot of skepticism from people this run and if it can continue. Whether we're talking about stocks or the economy generally it's important to remember that we haven't had a strong economy in 12-13 years and we haven't had one as good as this since the late 90's. It's natural to have become conditioned to mediocrity when it's been so long but this economy is different and has been showing its strength for 9+ months. Current growth estimates are now at 3.2% for the first quarter economy. How different is that? The average first quarter growth rate of the past decade has been 1%. It's only been 1.9% on average over the past five years.
Over the next couple of weeks, the benefit of the tax cuts for the average American will being to show up in paychecks. As a reminder the average American will benefit from tax reform by 4%, or an extra $1,980 this year. Add in raises and the average net take home pay is 7%+ higher. With consumer spending adding up to be about 70% of the US economy - clearly there's lots of room for optimism still...