After the halfway mark of corporate earnings season, Wall Street is blowing past expectations. Some say this reflects a gradual recovery in the global economy, while others remind us that expectations were never that high to begin with. The truth falls somewhere in the middle.
Q2 Earnings Blow Past Expectations
Less than stellar corporate results from Amazon and Exxon Mobil last week added a few blemishes to an otherwise strong earnings season. With 57% of S&P 500 companies reporting, 73% have posted per-share earnings that were above the consensus estimate, according to financial research firm FactSet. Seventy-seven percent of companies have also reported better than expected revenue.
The blended earnings growth rate for the S&P 500 is 9.1%, with ten of 11 sectors contributing to the gains.
The Dow Jones Industrial Average closed at record highs Friday. The S&P 500 and Nasdaq finished lower.
Wall Street Overcomes Earnings Recession
The corporate earnings recession officially came to an end in the fourth quarter after Wall Street posted two consecutive quarters of EPS growth. The recession officially began in Q3 2015 following back-to-back quarterly EPS declines.
Although profits continue to recover, they are likely not strong enough to support Wall Street’s record valuations. U.S. stocks are up more than 10% this year, largely on expectations of faster economic growth under the Trump administration. The tech-focused Nasdaq has added more than 18% year-to-date.
However, investors are already lowering expectations of swift legislative reform as the Trump administration struggles to implement its pro-growth agenda. The International Monetary Fund (IMF) has also removed expectations of fiscal stimulus in its recent downward revision to U.S. economic growth.
Earnings Season Continues This Week
Earnings will keep investors on their toes this week, with the likes of Apple, Pfizer, BlackRock and Tesla Motors scheduled to report. Food-industry giants Kellog, Kraft Heinz and Yum! Brands are also due this week.