US Economic Update: Quarter Three Earnings Results
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Throughout the year we have kept you up to date with the results of US corporate earnings; also referred to as quarterly earnings.
Analysts eagerly await corporate result figures as they act as a barometer of corporate health. So far, in 2018, the reports have been staggeringly good, with firms generally reporting continuous ‘beats’; results that exceed market expectations. Despite the recent turmoil in stock markets the rising profits being reported are helping to build a stronger earnings base that should ultimately underpin confidence.
As a brief recap the catalyst for improved financial health has been a pro-business agenda championed by President Trump. He is no stranger to the corporate world and understands that enterprise is important for a healthy economy. His interventions are directed at allowing business to grow. The most prominent example of his intervention is the generous $1.5 trillion worth of tax cuts benefiting corporates and individuals’ personal incomes.
The update we have for quarter three results, thus far, is that 306 out of 373 firms reporting their results have beaten expectations. When we last discussed the forecast outlook analysts expected quarter three earnings growth to be around 19.2%. The growth rate today is currently 23.62%; shown by the green bar in the chart below. Analysts are now suggesting that growth in earnings could rise to 26.30% after all 500 firms have reported and the numbers aggregated. This is represented by the orange bar in the chart below.
One of the factors leading to favourable results is increased sales. Revenues are up 8.21% for the quarter, primarily driven by companies in the energy (largely a function of oil prices), telecoms and real estate sectors.
US Corporate Earnings – Initial Estimates, Reported Results and Forecasts.
As you might expect the growth trajectory underway in company earnings must slow. The accelerated tax fuelled pace we are seeing is not sustainable. Timing the tipping point precisely is not possible, but earnings should start to slow next quarter and into 2019, but this is not bad news because we are talking about a slowing rate of growth – which is still growth!
Any slowdown at this point reflects the reality that corporates and individuals have been given a one-off boost and this effect will begin to ease. The important issue is that corporates and individuals are in a healthy state and a longer period of sustained and controlled growth looks feasible.