Market Beat: First quarter earnings update
May 7, 2018
Earnings reporting for the first quarter of this year is just about over with and the results have met expectations for the most part. We've had good results from some of the FANG stocks like Apple and Amazon. Currently more than 80 percent of S&P companies have reported their results.
According to data from FactSet, 78 percent of those companies have reported positive earnings surprises and 77 percent have reported positive sales surprises. So far, the earnings growth rate for the S&P 500 has been 24.2 percent. This is the best rate of earnings growth since the third quarter of 2010 when it was over 30 percent.
All 11 of the S&P sectors are reporting positive year over year earnings growth so far. These numbers are at record high levels since FactSet began monitoring this metric in 2008. The Consumer Discretionary and Information Technology sectors have been reporting the biggest differences between the estimates and reported earnings.
The Energy sector has reported the highest level of earnings growth at 93.0 percent. This is mostly due to the rising price of crude oil and the fact that earnings for the Energy Sector were very low a year ago. The Energy Sector has been led by Oil and Gas Drilling and Oil and Gas Exploration.
The Materials sector has been reporting the second best rate of growth at 44.2 percent. The growth in the Materials sector has been led by the Metals and Mining industry and the Chemicals industry.
Information Technology has been the third-best performing sector with an earnings growth rate of 32.9 percent. The Information Technology sector has been led by the Internet Software and Services industry and the Semiconductor and Semiconductor Equipment industry.
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Financials have been the fourth best performing sector with a growth rate of 26.5 percent. Financials have been led by Consumer Finance and Diversified Financial Services.
The stock market topped out in late January with all time record highs and has been down in choppy trading since then. As a consequence market valuations have also dropped. Currently the forward PE, or price to earnings ratio, is at 16.0, which is below the five year average of 16.1 but still above the 10-year average of 14.3.
One interesting fact this quarter is that the market hasn't been rewarding upside earnings surprises as much as normal and has been punishing downside reports more than average.
The outlook next quarter is for continued growth.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.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.