Earnings Season Begins – Weekly Update

April 16, 2018 | By Steven DiGregorio

Market volatility continues. Stocks slid on Friday, April 13, but still held on to gains for the week. The S&P 500 increased 1.99%, the Dow added 1.79%, and the NASDAQ was up 2.77%. International stocks in the MSCI EAFE also rose, gaining 1.45%.

Similar to recent weeks, international events continued to sway markets: Some remaining concerns about trade disputes coupled with escalating conflict in Syria may have weighed on people’s minds. The later resulted in action on the part of the US military over the weekend in an effort to stop the threat and use of chemical warfare in the Middle East. As of this morning, the markets seem to be responding favorably to our current position.

While we are certainly tracking these developments, we want to share insight about a key driver to both our economy and markets: the beginning of corporate earnings season.

1st Quarter Corporate Earnings Season

1. Expectations remain very high
Analysts anticipate a particularly strong earnings season. Thomson Reuters data predicts that S&P 500 companies’ profits were 18.6% higher in the 1st quarter of 2018 than in 2017. If accurate, this increase would be the largest since 2011.

So far, data seems on track. According to The Earnings Scout, 1st-quarter earnings growth is currently at 26.8%.

2. Banks outperform but stocks drop
On Friday, 3 major banks released their reports—and each beat projections for earnings and revenue. Despite this positive news, however, their stocks experienced sizable declines that contributed to overall market losses.

Why would strong quarterly results create stocks losses?

The markets anticipated this positive performance and had already priced it into the shares. As a result, any less-than-ideal news seemed to outweigh the expected earnings and revenue increases. In particular, 2 facts drove losses:
• 1 bank may have to pay a $1 billion penalty
• All 3 banks experienced slow loan growth

We are in the early stages of earnings season, and many major corporations still need to release their reports. In the coming weeks, we’ll continue monitoring these developments to better understand our economy. As always, please contact us if you have questions about how the data affects your finances and life.

 

ECONOMIC CALENDAR
Monday: Retail Sales, Housing Market Index
Tuesday: Housing Starts, Industrial Production
Thursday: Jobless Claims

 

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

 


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STEVEN M DIGREGORIO is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.
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