Market Beat: 4th quarter earnings reports rolling in
Corporate earnings are the main driver of stock prices and the market is at record high levels. Current geo-political events like the impeachment proceedings and the situation with Iran have not had much impact on stock prices.
The S&P 500 recently set a new record at 3,329.62. The Dow Jones Industrial Average has set an all-time high at 29,373.62 and this has been the first time in history over 29,000. The NASDAQ has also set a new record at 9,393.48. Valuations are high by historical standards, the forward PE or price to earnings ratio is at 18.6 which is higher than both the five- and 10-year averages. The PE ratio is obtained by dividing the price by the earnings.
Earnings reporting is just getting going, as of Jan. 17, 9% of companies have reported, but the reporting will get going in full swing over the next few weeks. According to data from FactSet, so far, the blended earnings decline has been -2.1%. The blended number includes actual and forecasted results. If earnings do in fact drop this quarter is will be the first time that we’ve had four consecutive quarters of year over year earnings drop since the third quarter of 2015 through the second quarter of 2016.
Five sectors are reporting year-over-year growth, led by the Utilities and Financials sectors. Six of the 11 sectors are reporting a drop in earnings, led by the Energy, Consumer Discretionary and Materials sectors.
Revenues are expected to grow this quarter by 2.7% which is a relatively low growth rate. Last week we saw some positive revenue surprises from companies in the Financials sector. Eight of the 11 sectors should have positive revenue growth, led by the Health Care, Utilities and Communication Services sectors.
In the Financials sector several of the major banks have already reported and we have seen better than expected results from J.P. Morgan and Citigroup, but the earnings from Wells Fargo were weaker than expected.
For stocks of local interest, Vail resorts will report on March 6. Their stock is up over 35% in the last 12 months, but the ski season is off to a slow start in some areas like Whistler.
The week after the Martin Luther King holiday, 58 of the S&P 500 companies are scheduled to report. That includes six of the 30 stocks that make up the Dow Jones Industrial Average.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://iwcasset.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.