Midpoint Earnings Update

We are now just past halfway through earnings season, as 269 of the 500 S&P 500 constituents have reported results…

Our economy and the corporate earnings picture remains in slow growth mode.  Of the companies that have released results so far, earnings have grown at about 3.8%, year-over-year, according to Standard & Poor’s.  It’s not great, but it is growth.

At the sector level, financials, consumer discretionary and consumer staples have seen the strongest earnings growth, achieving year-over-year increases of 9.5%, 9.1% and 6.8% respectively.  The weakest sectors have been technology, energy, materials and utilities, all posting earnings growth of less than 1%.

Concerning, however, is the fact that revenues have declined by about 1.2% over the same period.  Revenue growth (a.k.a. sales growth) is crucial to sustainable earnings growth.  It is expected to pick back up in coming quarters, but it has been quite weak of late.

Broadly, analysts are expecting a pick up in both earnings and revenue growth in the second half of the year.  Given the strength of the stock market rally, it makes sense that this resumption of growth will need to happen for the rally to continue.  While stock prices and company fundamentals can move in separate directions over shorter time frames, longer-term, stock prices move up or down with earnings. 

As always, if you have any questions, please call.



Source: Edited remarks of Kane Cotton, CFA, Bellatore Financial, Inc.