Earnings Season update - May 13th
Bottom Line: Two weeks ago, we were talking about stock market records being set. Last week conversation was dominated by China trade war fears. In the meantime, earnings season for America’s companies has continued to play out with a super-impressive story being told. You might have guessed that with the outstanding first quarter growth rate, 3.2%, companies would be doing much better than expected and you’d be right. Here’s the current scorecard for companies that have already reported.
- 90% of companies have reported
- 76% have reported positive earnings surprises
- 59% have topped sales targets
And that’s how we’ve gone from a stock market with declines of around 20% from all-time highs in early January – to record highs recently. Consumer spending drove the economy in the first quarter and we’re seeing that in the earnings reports from companies as well. Companies that are considered “consumer discretionary”, like retailers have been among the biggest surprises this earnings season. Given what we’ve already seen and on back of the phenomenal first quarter economic growth, there’s plenty of room for optimism for investors and the overall economy now. Also, as I illustrated on Friday, the overall impact of the recently increased Chinese tariffs is extremely small (0.2% of the US economy impacted). I don’t know where that story ends but for now, I do know that the fundamental economic picture looks great and profits reflect it.