Market Beat: Third quarter earnings update
October 31, 2017
We're just over halfway through third quarter earnings reports, and the results have been better than expected so far. There were some concerns about the effects of the recent hurricanes, but they haven't been too bad. As of October 27, 55 percent of S&P 500 companies have reported their actual earnings results.
According to data from FactSet, 76 percent of the companies that have reported actual earnings have beaten their estimates. The vast majority of the beats have come from the Information Technology sector, where 91 percent of the reporting companies have reported results that exceeded their estimates.
The Materials sector has had 85 percent of reporting companies beating their estimates. All of the other sectors have also had a majority of the reporting companies beat their estimates; the only exception has been Telecom Services where the results are split 50/50 between exceeding and meeting the expectations.
Notably, Amazon, Alphabet, Microsoft and Intel reported results last week that were quite a bit better than expected. Amazon shares rose more than 13 percent following the release of their report. Intel was up more than 7 percent, Microsoft more than 6 percent, and the shares of Alphabet were up more than 4 percent.
The Energy Sector has shown the strongest earnings growth of the eleven S&P sectors with a whopping growth rate of 138.2 percent. That sounds like a huge number, but remember a year ago the earnings growth for the Energy sector was minuscule. Information Technology has been the next best sector with a 14.8 percent growth rate. Real Estate and Materials have been the next best performing sectors with growth rates just above 6 percent. Health Care and Consumer Staples are also showing positive growth rates with returns of 5.4 percent and 1.8 percent respectively.
Five of the sectors are showing negative rates of earnings growth with the reporting about halfway over. They are; Industrials down 0.3 percent, Consumer Discretionary down 0.4 percent, Telecom Services down 2.1 percent, Utilities down 6.3 percent, and finally Financials with a drop of 8.2 percent.
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This week another 135 companies will report, including some of the FANG stocks, like Facebook and Apple. Hopefully, the strong earnings will continue throughout the remainder of the reporting season. Earnings are the main driving force of the stock market and we've just seen new record highs for all of the major indexes.
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.