Market Beat: First-quarter earnings update

Ken Roberts
Market Beat

Earnings reporting season for the first quarter of 2019 is just about over with. To date, about 80% of S&P 500 reporting companies have released their results.

According to data from FactSet, 76% of those companies have reported better than expected earnings and 60% have reported upside revenues. Corporate earnings are the number one driver of stock prices.

Year-over-year earnings growth was predicted to drop this quarter for the first time since the second quarter of 2016. So far, the decline in earnings growth has been -0.8%, which is negative, however the forecast was for earnings growth to drop by about 4% this quarter, so it is better than expected.

The stock market is valued higher than normal at this point. The stock market is a forward-looking mechanism, so that means that the outlook is positive. The current forward PE, or price to earnings ratio, is 16.8, which is higher than both the five-year average of 16.4 and the ten-year average of 14.7.

At the sector level just over half of the S&P sectors are reporting earnings growth. The S&P 500 is broken down into 11 different sectors according to GICS or Global Industry Classification Standards. Six of the 11 sectors have had earnings growth, led by the Health Care and Utilities sectors. Five of the eleven sectors are reporting a decline in earnings, led by the Energy, Information Technology and Communication Services sectors. The growth rate for the Healthcare sector has been 9.2%, followed by Utilities at 7.6%.

The Energy sector has reported the greatest drop in earnings growth with a fall of -26.2%. Crude oil increased in price during the quarter but is lower than it was during the first quarter of 2018.

Revenues have grown 5.2% so far. Nine of the eleven sectors are reporting revenue growth, led by Healthcare and Communication Services. In the Healthcare sector, the Healthcare Providers and Services Industry has led the growth. Even though Healthcare stocks have been reporting good earnings, some of them have been under pressure recently due to political discussions regarding a single payer health care system that could have an impact on their future. Only two of the eleven sectors have shown a fall in revenue growth, led by the Information Technology sector.

For the second quarter, analysts a still predicting a drop in earnings growth of -1.3% and are forecasting revenues to grow by 4.3%.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at 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.

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