US Companies Profits Up, Some Will Top Expectations

US Companies Profits Up, Some Will Top Expectations

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.

Symbol Last Trade Date Change Open High Low Volume
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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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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