Market Beat: Second quarter earnings forecast
June 28, 2018
Earnings reporting season for the second quarter of 2018 will get underway a couple of weeks after the quarter ends.
Traditionally, Alcoa Aluminum, symbol AA, starts the reporting season and they will report their second quarter results on July 17. Corporate earnings have been strong over the last few quarters and that trend is expected to continue over the rest of the year.
The market has been volatile recently, mainly due to fears of a trade war developing. Geo-political events like this can have an impact on the market. Markets do not like uncertainty. Hopefully these trade issues will get resolved soon and not escalate.
According to data from FactSet, right now the estimated earnings growth rate for the S&P 500 is 19.0 percent. If it is 19.0 percent, it will be the second-best rate of growth since the first quarter of 2011, when the growth rate hit 19.5 percent. Last quarter, the earnings growth rate hit a whopping 24.7 percent.
The market is fully valued presently even with the recent pullback. The forward price to earnings or PE ratio is at 16.6 which is higher than both the five and 10-year averages of 16.2 and 14.4, respectively.
A survey of stock analysts reveals that they are the most optimistic about the Information Technology, Health Care and Energy sectors. They are the least optimistic about Telecom Services and Utilities.
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The Energy sector is forecast to have the highest rate of earnings growth at 142.0 percent. The Materials sector is next at 48.7 percent. The Consumer Staples sector has seen the largest drop in expected earnings growth at 8.0 percent, which is down from 11.0 percent at the start of the second quarter.
Revenues are also expected to grow. The forecast revenue growth rate is currently at 8.7 percent. If it comes in that high, it will be the best rate of revenue growth since the third quarter of 2011 when it hit 12.5 percent. The Materials sector is supposed to have the greatest revenue growth at 23.8 percent. Materials should be led by the Chemicals and Metals & Mining industries. The Energy sector should have the second-best revenue growth at 22.4 percent and be led by the Oil & Gas Refining & Marketing and the Oil & Gas Drilling industries.
A good earnings reporting season could help reduce some of the market volatility that we've witnessed lately. We'll have to monitor the earnings and any new developments in the potential trade war.
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.