Evdokia

Evdokia Pitsillidou, Head of Risk Management at easyMarkets. She specialises in commodities, options and currencies and loves to solve analytical problems and overcome challenges.

Earnings season is upon us, and Wall Street is looking sharp. A slew of early performances suggest American companies are poised for another quarter of year-over-year earnings growth.

 

According to FactSet, a financial research firm, 6% of S&P 500 companies have reported actual Q3 earnings as of 13 October. Four-fifths of those companies reported per-share earnings that were above the median estimate, while 78% reported better than expected revenue.

 

FactSet estimates that the Q3 blended earnings growth rate for S&P 500 companies will be 2.1%, with energy stocks leading the rally. That’s well below the last two quarters, where the S&P 500 saw double-digit percentage growth.

 

Although bank results have been largely mixed through the early stages of earnings season, technology giant Netflix recently posted solid Q3 results. The streaming service added 5.3 million subscribers in July-September, which was well above forecasts calling for a gain of 4.5 million. The company’s EPS growth rate of 37 cents was also higher than forecast.

 

Stronger corporate results reflect a myriad of forces, including a synchronized global recovery, weaker dollar and a broad rebound from a prolonged earnings recession. However, several analysts have tempered their expectations for the third quarter, citing weaker domestic growth and a volatile hurricane season.

 

Sonic Automotive Inc. recently issued a warning that third quarter earnings will underwhelm due to Tropical Storm Harvey in Houston and Hurricane Irma in Florida. Combined, these two storms caused roughly $150 to $200 billion worth of damages. The storms likely dinged the U.S. economy after its best quarter in more than two years.

 

Another quarter of positive earnings growth will feed into the relentless rally in U.S. stocks. The major equity indices have gained between 14% and 23% year-to-date. With the CBOE VIX Volatility Index in the single digits, the record-breaking rallies are expected to continue.

 

[1] FactSet (13 October 2017). Earnings Insight.

[2] John Butters (7 August 2017). “S&P 500 Sees Double-Digit Earnings Growth for Second Straight Quarter.” FactSet Insight.

[3] Michelle Castillo (16 October 2017). “Netflix adds 5.3 million subscribers during Q3, beating analyst estimates.” CNBC.

[4] Jamie LaReau (16 October 2017). “Sonic issues earnings warning because of hurricanes.” Automotive News.

[5] Steve Liesman (11 September 2017). “Harvey and Irma economic hit could total $200 billion: Moody’s.” CNBC.

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