- The busiest week of the current US corporate earnings season just ended, with 123 companies in the S&P 500 reporting.
- Though some individual companies have certainly surpassed investor expectations, the results have mostly proved dismal, with the lowest number of earnings “beats” in seven years.
- Equity strategists and economists are telling clients that growth remains a concern for US companies and the economy more broadly.
- Stay updated on the latest earnings results with Markets Insider’s earnings calendar.
The heaviest week of corporate earnings season has come to a close, and many results underscored just how tumultuous this reporting period has become against a backdrop of decelerating economic growth.
“The earnings minefield continues,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients on Tuesday. He pointed to the declining number of companies exceeding earnings estimates.
He continued: “For stocks the rest of the year, where will EPS settle in and what’s the right P/E multiple to pay for this slowing growth and tighter monetary policy? If anyone can tell you with confidence the exact levels, respectively take it with a grain of salt. All I’m confident in is that earnings growth will continue to moderate and that the P/E multiple will be lower than its been in years.”
The big picture isn’t entirely dark, but it is dim. So far, the average S&P 500 company has exceeded consensus estimates by 2.2%, the lowest beat since the fourth-quarter of 2011 (reported in early 2012), according to equity strategists at Deutsche Bank.
The breadth of positive surprises has so far come in at 69%, also the lowest since 2011. Meanwhile, reported sales – while still coming in 0.3% above estimates – have fallen below the average beat in the prior four quarters.
Overall, underlying fourth-quarter growth has fallen sharply to 3.4%, whereas analysts earlier in the season forecasted double-digit gains (then began trimming their forecasts). Earnings have disappointed “significantly” so far this season, wrote Binky Chadha, the firm’s chief US equity and global strategist, who highlighted that the market now runs the risk of logging zero to slightly negative earnings growth.
“In strong contrast, solid equity market and off-the-charts individual stock performance suggest the slowing was more than priced in,” Chadha and his team of strategists wrote in a note to clients on Thursday.
They also included this chart, placing in context just how tepid consensus estimates have proved this quarter.
Earlier this year, Apple seemed to set the stage for a messy earnings season when the iPhone giant warned investors that its quarterly revenue would come in lower than previously forecasted. The announcement sent Apple shares plunging and slammed the broader market – though the market liked Apple’s earnings when they did come out, with analysts telling clients the results were better than feared.
Then came disappointments of all stripes from other economic bellwethers and important areas of the market.
American Airlines plunged last month when it reported results, retailers like Macy’s and Kohl’s dragged retail stocks down when they reported fourth-quarter results, Amazon shares dropped 5% when the company reported slower growth rates across segments in the fourth-quarter, and shares in notable semiconductor company Nvidia tanked when its results came out this week. CEO Jensen Huang told investors the fourth-quarter was “unusually turbulent,” citing decelerating economic growth, particularly in China.
To Chadha’s point, the market as a whole has taken the individual disappointments in stride. The S&P 500 has risen 3% in the last week, and 8% so far this year. To be sure, the market is still trading 8% below its all-time high last fall, but it’s managed to make a sizeable 15% recovery from the depths of last December.
“The slowing growth narrative is now the consensus,” Sam Rines, chief economist at Avalon Advisors, a Houston-based investment advisory firm, wrote to Markets Insider in an email on Friday. “One of the primary macro themes emerging from earnings season is the U.S. is doing fine, and the rest of the world is a bit softer.”
Still, with 233 S&P 500 companies having reported so far, investors and strategists still have plenty more earnings reports to parse through. Key companies like Google parent Alphabet, General Motors, and Disney are scheduled to report earnings next week.
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