Market Beat: Preview of fourth quarter earnings
January 10, 2018
Earnings reporting season for the fourth quarter of 2017 will get going in full swing over the next couple of weeks. The forecast is pretty bright.
According to data from FactSet, year-over-year earnings growth for the fourth quarter is projected to be 10.5 percent. If the growth rate comes in above 10 percent, it will be the third time this year that the earnings growth rate has been in the double digits.
Every one of the eleven different S&P sectors is expected to report positive earnings growth. The best performing sectors are expected to be Energy, Materials, Information Technology and Utilities and they are forecast to report double-digit growth. The worst performing sectors are expected to be Industrials and Telecom Services, but they still should show positive yet single digit growth.
The Energy Sector should be the best performing with a growth rate of 132.7 percent. Materials is expected to be the next best with a 28.1 percent rate of growth and should be led by the Metals and Mining Industry. Information Technology is expected to be number three with a 15.9 percent rate and should be led by the Semiconductor and Semiconductor Equipment industry. Utilities are expected to come in fourth at 11.7 percent.
Telecom Services are forecast to be the worst performing with a growth rate of only 1.1 percent. The Industrials should be slightly higher than Telecom Services with a 1.7 percent rate. Within the Industrials sector, the Machinery and the Aerospace and Defense industries are expected to report strong double-digit growth rates of 33 percent and 10 percent respectively.
Revenues are projected to grow at a rate of 6.7 percent and all 11 of the S&P sectors are forecast to report positive growth in revenue.
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The outlook for 2018 is even stronger than 2017. Earnings growth is expected to be 13.1 percent in 2018 and revenue growth is forecast at 5.7 percent. Currently, the market is at record levels and the forward PE or price to earnings ratio is at 18.4, which is higher than the five-year average of 15.9 and the 10-year average of 14.2.
The market is fully valued and the forecast for this year is fairly optimistic, which means that any disappointments might not be received very well. The Federal Reserve will have their first meeting of the new year at the end of this month, and some interest rate increases are expected this year.
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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