Earnings Season “officially” begins this week and is dominated by the financial sector. Citigroup kicked things off this morning with a mixed report, posting better-than-expected earnings but missing on the top line. Other banks/financials scheduled to report this week include JPMorgan Chase, Wells Fargo, Bank of America, PNC Financial Services, US Bancorp, Goldman Sachs, Morgan Stanley, SunTrust Banks, BB&T, and American Express.
Away from financials, other reports we’ll be watching for include those from Delta Air Lines, UnitedHealthcare, CSX, Fastenal, and Netflix. Looking at estimates – for the fourth-quarter of 2018, the blended earnings growth rate for the Standard & Poor’s 500 Index is 10.6%, if that is the actual growth rate for the quarter, it will mark the fifth straight quarter of double-digit earnings growth for the index, according to data from FactSet.
The market has absorbed some high profile earnings warnings, notably from Apple and FedEx, and the major stock market indices are in correction territory, so some bad news is already expected. Combine this with concerns over the future of trade relations with China and global economic growth, we think guidance will be more in focus than the actual earnings numbers. Looking at valuation after the recent market drop – the forward 12-month P/E ratio for the S&P 500 is 15.1, which is below the 5-year average of 16.4, but above the 10-year average of 14.6 – also according to FactSet.
So the Bulls cite growing earnings and in-line valuation along with a strong US economy, while the Bears point to trade battles, a government shutdown, a Federal Reserve that might not be done raising interest rates, and weakening global economic numbers most notably out of Asia. This earnings season is being played out against a backdrop with a lot of unresolved and uncertain big picture items. Bottom line, it is going to be busy and interesting!
All the best,
Southport Station Financial Management, LLC