US Companies Profits Up, Some Will Top Expectations
Earnings season in here, and US companies are set to report their strongest profit growth in 2 years, and just may justify Wall Street to extend its strong rally, as some participants anticipate that many companies will top expectations.
Companies in the S&P 500 are expected to report their bottom lines grew by 6.2% in Q-4, the latest data shows, the strongest growth since a 7.0% increase in Q-1 of Y 2014.
The last Quarter was solid for the broad US economy.
A Key measure of health of the manufacturing sector, the Institute for Supply Management’s (ISM) monthly purchasing managers’ index, recently hit its highest mark in 2 years, and the global economic outlook has improved too.
Also, Q-4 corporate outlooks above analysts’ expectations is at the most they have been in several years.
Now, some strategists say, investors may see a larger-than-usual number of companies posting results that beat Wall Street’s estimates in the weeks ahead.
A substantial Northside surprise to reported profits could provide more momentum for a stock market that has been in full rally mode since the election of Donald Trump on November 8.
The Trump Rally to record highs for the 3 US major stock indexes has pushed PE multiples to their highest marks in 10 years and above historic norms.
The S&P 500 is trading at 17.1X forward earnings, that above the long-term average of 15X.
More than 60% of corporate profit reports top analysts’ aka Beating the Street, estimates on average, but data from RBC Capital Markets showed that percentage climbs to 70% or higher when the ISM index, which indicates growth when it rises above 50 – reaches into the mid-50’s, where it is now.
According to the data, S&P 500 companies have given or updated earnings guidance that was better than analysts’ expectations 41 times so far in Q-4, which is about 28% more than a year ago and the most since Y 2011.
Conversely, companies have given guidance below analysts’ expectations 83 times for the Quarter, down by about 15% from a year ago. Companies typically guide below expectations in any given Quarter.
A Key concern would be if USD continues to strengthen, which would dampen sales of US multinationals. The US Dollar (.DXY) Index spiked 7.1% in Q-4 of Y 2016.
Note: if USD stays stable earnings are going to improve in Y 2017.
|NYSEArca:SPY||227.05||13 January 2017||0.52||226.73||227.4||226.69||62,711,200|
|HeffX-LTN Analysis for SPY:||Overall||Short||Intermediate||Long|
|Bullish (0.29)||Neutral (-0.04)||Very Bullish (0.54)||Bullish (0.35)|
Have a terrific week.
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