Earnings Season update for October 15th
Bottom Line: This season kicked off at about the same time stocks began a sharp two-day selloff resulting in 1400 Dow points being wiped away. After a strong relief rally on Friday, there will be additional nervousness about trading as we advance into the week.
While day to day and week to week just about anything can and, at times will happen with traders, fundamentals always matter most in the end. By Friday, stellar bank earnings began to trump the trader’s fears. We’re off to a great start to the earnings season.
For companies that have reported so far in this season – largely financials – the news has been outstanding. Here's where we stand so far...
- 6% of companies have reported
- 86% have reported positive earnings surprises
- 68% have topped sales targets
- Earnings growth is averaging 19.1%
It’s hard to hold companies down when they’re growing earnings by 19% year over year. That’s not to say we can’t have some more selling in the market, short term anything is possible, but if this kind of growth holds and forward guidance remains decent – there's really nothing for longer term investors to worry about here unless you’re interested in buying on some of the dips.
We're clearly seeing the impact of the Tax Cut and Jobs Act and I remain optimistic about economic growth. While many are worried about trade and rising interest rates, I take a slightly different view. The fed raises rates to keep inflation from getting out of control and wrecking the economy. Let’s say there weren’t headwinds from trade...How much faster would the fed have to raise rates? The faster the fed raises rates, the greater the chance it hurts the US economy by shocking consumers. This is the perfect time to work on trade - when the economy is strong, we’re in a commanding position and the fed is in rate rising mode.
Market reaction over the short run is unpredictable but fundamentals matter most overtime and the fundamentals of our businesses are about the best they've ever been.