Market Beat: Second verse same as the first?
Earnings reporting season for the second quarter will get started soon.
Alcoa Aluminum will report their results on July 17. Traditionally, Alcoa’s report is considered to be the start of the earnings season even though there are some companies that will have reported their results earlier. Most companies in the S&P 500 will have reported by the middle of August.
The market is valued at a fairly high level at this point. The S&P 500 recently hit an all-time record high of 2995.84 on July 3 after the G-20 meeting which brought some positive news on tariff policy. The forward PE, or price to earnings, ratio is 16.9 which is above both the five-year average of 16.5 and the 10-year average of 14.8.
According to data from FactSet, earnings for the S&P 500 are expected to decline by -2.6%. If earnings growth does in fact drop this quarter, it will be the first time in over three years that we’ve had two consecutive quarters with negative earnings growth.
On the sector level, slightly less than half of the sectors are expected to report earnings growth and more than half should report a fall in earnings. The S&P 500 is broken down into eleven different sectors. Five of those sectors should report some growth, led by the Utilities and Health Care sectors. Six of the 11 sectors are predicted to have negative earnings growth led by the Materials and Information Technology sectors.
On the industry level, Gas Utilities and Water Utilities should have the best growth rates in the Utilities sector at 20% and 14% respectively. Health Care Providers and Services should lead the Health Care sector with a 15% rate of growth. Metals and Mining and Chemicals should have the greatest fall in earnings in the Materials sector with drops of -60% and -8% respectively. In the Information Technology sector, the largest earnings declines are supposed to be from the Semiconductors and Semiconductor Equipment industry with a drop of -31%. The Technology Hardware, Storage and Peripherals industry should be next with a -22% fall.
Corporate earnings are the main driver of stock prices and the forecasts are such that most of the time, companies hit or exceed their expected numbers. Generally, there are not a large amount of significant earnings surprises or disappointments. I’ll give an update when the second quarter earnings season is coming to a close.
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.
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