Earnings Season update for February 20th
Bottom Line: We've had a record low period of negative volatility give way to the most volatility we've had in 8+ years. We've had a correction and a recovery and all of those things just within the month of February. The constant has continued to be earnings. They were great at the start of the season and they're great as we're heading down the home stretch of it.
Through last week, eight of every ten companies had reported their results for the fourth quarter. The expectations were high for America's companies. The average estimate for earnings growth is 10.8 percent year over year and all eleven sectors of the US economy are projected to have grown. So, are we getting the follow through?
80 percent of companies have reported
75 percent have reported positive earnings surprises and 78 percent have topped sales targets
Earnings growth has been 15.2% percent!
Expectations were high and once again companies are crushing them. In fact, at over 15% growth - this is the best year over year improvement for American corporate profits since the 3rd quarter of 2011. For folks wondering and worrying about whether something was wrong all of the sudden due to the correction, it's actually quite the opposite. Earnings have only improved over the past week's reporting - just as has been the case throughout the earnings season. Every subsequent update has brought even better news. This means that prices are simply cheaper for many companies today - compared to prior to the correction. This is great news for those looking for value opportunities in the market. There's still a heck of a lot of room for optimism.
Don't forget, 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 and candidly I'm showing 4%+ in my research. 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.
As a bonus, the benefit of the tax cuts for the average American are now showing 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...