Corporate earnings are crushing expectations and the market doesn't care

[SirLinksALot]

SOURCE: YAHOO FINANCE

URL: https://finance.yahoo.com/news/corporate-earnings-crushing-expectations-market-doesnt-care-224132178.html

by Myles Udland


Corporate earnings in the fourth quarter have been stellar.

With 80.7% of the S&P 500’s market cap having reported earnings through the market close on Friday, February 9, 74% of companies are beating bottom-line estimates. Earnings are topping analyst expectations by an average of 4.8%. This is better than the 68% beat rate by an average of 4.7% seen over the last three years, according to data from Credit Suisse.

Credit Suisse also notes that earnings per share growth in the fourth quarter is expected to hit 15.3%, which would be the second-best quarter since the start of 2015.

But if current earnings beats relative to expectations hold through quarter-end, earnings per share could rise 15.9% against last year, which would be the strongest quarter for earnings growth since 2015.



Markets, however, have recently been enduring their most turbulent stretch in years, with the major averages falling more than 5% in the first full week of February. The nine-day drop of 10.04% from peak-to-trough seen through February 8 was the largest nine-day drop from an all-time high since at least 1980.

Disappointing market performance along with strong fundamentals — meaning good economic growth, good earnings, strong balance sheets, etc. — is not as surprising, however, as it might seem.

In a note to clients earlier this month, Bank of America Merrill Lynch noted that strong earnings do not provide the kind of backing for strong stock market performance that many investors expect. Market history shows that periods of strong earnings have often been associated with double-digit earnings growth. And earnings periods like the current one — where the benefits of tax reform are making earnings expectations in the coming quarters far better than had been expected — are exceptional and quickly discounted by investors.

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[endicom]

I would disregard that portion of earnings attributable to the tax cuts. For now, that is.

[Free Vulcan]

The market ran up in anticipation of those earnings, and ran up well. A new Fed chair has scared them and knocked it back down a bit. Right now it's working it's way through that. Barring some other jar, I would expect the market to at least take a try at the old highs within a mont or so.