The last month has been a whirlwind for all markets. Volatility has returned. Prognosticators have been talking about the Fed’s 3 or 4 increases. The technicians are talking about V bottoms or W bottoms. Quietly underneath all of the hubbub, companies are releasing an incredibly strong quarter that could provide a foundation for the market for quarters ahead.
The top line numbers are very encouraging:
- Almost ¾’s of all companies have reported a positive Earnings Surprise
- Revenue Growth (y-o-y) is topping 8% which is very healthy (best since 2011)
- Earnings Growth (y-o-y) is almost 15%
The areas where companies missed estimates were Energy, which entered the quarter with enormous expectations – and turned in a good quarter, not a great quarter, and Utilities which is now faced with higher than expected energy costs.
Fast Earnings Growth Sectors are:
- Energy – while they missed their estimates, they still grew at over 100% – albeit from a low base last year.
- Materials – these companies continue to put up great quarters. This one was up almost 44%
- Technology – continues to grow strongly. This quarter was 23%
- Financials – put up a 14% growth quarter
It should be noted that these sectors are very consistent with a growing economy with rising interest rates. Marc Chaikin has repeatedly called these sectors out over the last 90 days.
Earnings are important, but they are a rear view indicator. They show the performance that happened at the end of the last year. On the other hand, Looking at Corporate Guidance and how they upgraded analysts’ estimates will give investors the courage to forecast strong Q1 and Q2’s.
Corporate Guidance has been very strong. Oftentimes, companies feel that analyst expectations are too high, they use the quarterly earnings announcement to dampen those expectations. This quarter, however, saw much less of this activity. Instead companies were raising expectations about future performance.
As a result, analysts have continued to raise estimates. They now are forecasting a VERY challenging 18% growth rate for 2018. That is setting a very high bar for companies, but reflects great international business conditions, continued benefits from tax reform, and a solid U.S. economy.
So while the market frets about volatility and interest rates, there is a surge of good news coming from this quarter’s earnings report. These reports would have supercharged the market – absent the noise from the Fed, the VIX and the Bond Market. When the market finally gets a respite from macro news, and they turn back to company fundamentals, they are going to find these companies are in good shape.
Data is provided by Factset Earnings Insight