Market Beat: US economy appears to be on solid footing
November 17, 2014
Corporate earnings are the main driver of the stock prices. The US market as measured by the Dow Jones Industrial Average and the S&P 500 index are at record high levels. The NASDAQ is at its highest level in 14 years, but still has not touched its all-time highs set back in March of 2000.
Now that earnings season is winding down, let's take a look at how the reports have come in. According to data obtained from Bloomberg, 450 of the 500 S&P companies have reported so far, which means that the third quarter earnings reporting is 90 percent complete.
Of those 450 companies, 359 have beaten their earnings estimate; 1 company reported earnings that were in line with expectations; and 89 reported earnings below the analyst's estimates. So, the beat rate is almost 80 percent.
The energy sector has performed quite well, as the average earnings surprise has been 8.92 percent better than the expectation. In the energy sector, there is only one company which has not reported yet.
Financial stocks have also fared well. With reports in from all 85 companies in the group, the average earnings beat has been 7.79 percent. The next best sector has been materials, in which all 30 companies have reported, and the average beat has been 6.88 percent.
The only major S&P sector to report below estimates was telecommunication services. With all six companies reporting, three beat estimates and three missed, and the average was slightly below expectations at -0.67 percent.
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Overall, the third quarter has been a strong earnings season and that is already reflected in stock market valuations, with the market at record highs. Earnings growth for the next quarter is estimated to come in at 7.6 percent and that estimate has dropped somewhat in recent weeks, according to Thomson Reuters.
For the first quarter of next year, earnings are forecast to grow at 8.8 percent, but that estimate has also been scaled down since October 1.
The US economy appears to be on very solid footing, and with 90 percent of the earnings reports in, I think it's fair to say that this quarter has been a success.
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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