Market Beat: Third-quarter earnings as expected

Ken Roberts
Market Beat

Earnings reporting season for the third quarter of this year is just about half way over with and so far, the results have been pretty much in line with the expectations. The market has been doing well recently, the S&P 500 has set a new all-time record high as of Oct. 28 by going over 3,044.

Thirteen individual stocks in the S&P 500 high new all-time highs today, including Apple and J.P. Morgan.

Just over 40% of the companies in the S&P 500 have reported their results for the third quarter. Eighty percent of those companies have reported earnings that were above their estimates according to data from FactSet and that is above the five-year average.

Earnings growth was forecasted to decline this quarter and the blended earnings growth drop is currently at -3.7%. The blended number uses actual reported earnings combined with the estimates of those companies who have not reported yet. If the reported results do show a drop in earnings growth, it will be the first time we’ve had three consecutive quarters of declining earnings growth since the fourth quarter of 2015 through the second quarter of 2016. The market is also full valued now, the forward PE, or price to earnings, ratio is at 17.0, which is higher than both the five- and the 10-year averages.

About half the S&P 500 sectors are reporting earnings growth and the rest have reported an earnings decline. The S&P 500 is made up of 11 different sectors. Five of the 11 have reported earnings growth and the growth has been led by the Utilities and Real Estate sectors. Six of the 11 sectors have reported a fall in earnings growth and the drop has been led by the Energy, Materials and Information Technology sectors.

Some of the factors affecting earnings this quarter have been the strong U.S. dollar, trade war fears and the cooling of the global economy. It looks like companies that have more global exposure are seeing a negative impact on their earnings. As mentioned above, the blended earnings growth decline is -3.7%. Companies that produce more than half of their sales within the United States are only reporting a drop of -0.8%, while the companies that do more business overseas and produce more than 50% of their sales abroad are reporting a drop of -9.1%.

Earnings growth is expected to increase next year.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Get more information at 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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