Earnings Season update for October 29th

Earnings Season update for October 29th  

Bottom Line: October surprises in election years generally refer to politics, and many have been attempted in the political realm, but the bigger surprises have turned out to be reactions by nervous investors and exceptional earnings results for companies.  After getting off to a great start to the earnings season, we’ve continued it through the third  week...  

For companies that have reported so far in this season the news has been outstanding. Here's where we stand so far...        

  • 48% of companies have reported                     
  • 77% have reported positive earnings surprises     
  • 59% have topped sales targets     
  • Earnings growth is averaging 22.5%            

It’s hard to hold companies down when they’re growing earnings by more than 20% year over year. Despite recent selling, the correction, that’s occurred in the markets – which on October 12th I mentioned I fully expected prior to October ending, the most important point is that fundamentally our economy and the fundamentals of companies are extremely strong. 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.   



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