A Solid Q3 Earnings Season - October 24, 2018

Aided by a stronger U.S. economy and a cut in the corporate tax rate, Q3 earnings have been strong.

  • With 22% of S&P 500 companies having reported (10.23.18), S&P 500 profits are projected to rise 22.1% from a year ago (Thomson Reuters).

  • Revenues are projected to rise 7.3% versus a year ago.

  • About one-third of S&P 500 companies report this week.

Headwinds we’re hearing—

  • Concerns about margin pressure amid an uptick in labor costs

  • Concerns about tariffs, higher material costs, freight costs, energy costs

  • A higher dollar putting modest pressure on revenues

Nevertheless, 79% of S&P 500 companies have beaten on the bottom line and profit growth above 20% is strong.

Investor’s Corner

In recent days, investors have focused on interest rates, the trade war with China, a weak Chinese stock market, and the slowdown in Chinese economic growth.

China has rattled short-term investors in the past, but U.S. exports to China make up less than 1% of U.S. GDP.

Biggest positives—no signs of a recession, economic growth is solid, and credit markets are functioning normally.

Throughout the bull market, the favorable economic environment has helped to cushion market corrections when short-term volatility has materialized. Pullbacks in stocks are normal and have historically been viewed as healthy when the economic environment has been favorable.