Q2 Earnings Season Off to a Fast Start - July 18, 2018

Q2 earnings season is underway, and analysts are expecting strong numbers.

The early read is encouraging.

  • With 8% of S&P 5002 companies having reported (as of July 16), S&P 500 profits are expected to rise 21.2% vs one year ago (Thomson Reuters I/B/E/S).

  • 85% of companies, which have reported Q2 profits, have beaten analyst forecasts.

  • The cut in the corporate tax rate, coupled with strong U.S. economic growth, is aiding results.

Historically, most firms beat profit expectations, which means the current estimate is likely to rise as firms report.

  • The April 1st estimate for Q1 came in at 18.5%.

  • When Q1 had concluded, profits jumped 26.6%.

Investor’s corner—

Q1 profit growth limited the damage in stocks. It did not prevent the general market from losing ground. Other issues sometimes create short-term volatility.

Earnings are expected to be strong in Q2 and for the remainder of the year. But 20%+ growth is not sustainable into 2019. That may also be creating some hesitancy among investors.

Bottom line—cash finds its way to where its treated best. Medium and longer term, profit growth and expectations of profit growth are the largest factors in the stock price equation.