Telescope man

Earnings Season—The Big Picture

Sometimes you read the earnings season press or the reports released by Wall Street Research Departments and you quickly lose the forest for the trees. They are so dense with statistics and numbers that  you miss that there is a sizeable trend underway. So I am going to describe this current earnings season without using a single number!

This quarter’s earnings season is one of those times where numbers obscure the really good news. There is no other way to look at this quarter without being blown away. Earnings are beating estimates regularly and broadly across every sector. Entering the quarter, the bar was also set high (people were afraid that estimates had grown too quickly), and would be hard for earnings to surpass. But no, earnings looked like Lebron James taking on the Raptors—no issues!  

What is driving this earnings success? You can point to:

  • A Continuation of strong earnings quarters
  • Tax relief
  • Share Repurchases
  • Low Interest Rates

Interestingly, the market has not rewarded these great results. The market has traded sideways all during the earnings season thus far. Offsetting the positive news of earnings has been the increased risk in the market from volatility, gradually rising rates, trade wars, rising energy prices so the market has floundered without getting traction from the good news.

Looking forward, more companies have announced share buybacks. More companies are adjusting corporate guidance upwards for future quarters. Estimates are a little slow to rise with this news, but expect them to start going up shortly. They already are at double digits in terms of growth.

At some point, the market will sit up and take notice that earnings are on a very strong foundation. At that point, you should see prices begin to rise again as long as the external factors don’t dampen the enthusiasm. They say that statistics can lie, but really statistics can cloud a very clear picture.