The returns on the third-quarter earnings “election” are flooding in. Through the close of Tuesday, a total of 215 or 43% of S&P 500 firms have reported third-quarter results. Based on the trend that is developing, we are prepared to call this one for the bulls.
Keep in mind that not all “precincts” have called in. For example, no utilities have reported so far, and even within some of the individual sector “races”, there are some industries which report earlier than others.
This said, the results so far are very encouraging, with positive surprises out pacing disappointments by almost a 5:1 ratio. The median year-over-year growth rate for the S&P 500 is 12.74%, very much inline what we have seen in recent quarters. Once again the highest growth rate is in the Energy sector at 73.68%. However within the sector, most of the results reported so far have been among the Oil Service firms. This would be the equivalent of the inner city precincts reporting for the Democrats in a district, with the outer suburbs still to report in. The overall number will come down sharply when all is said and done.
Still, with seven of the nine reports in higher than expected, that race is shaping up as a landslide for the bulls. In five of the 10 sectors, positive surprises are out pacing disappointments by more than 5:1, and in every sector positive surprises are outpacing negative surprises and matching reports combined. Every sector with the exception of Financials so far is showing double-digit growth.
In terms of median surprise, the Tech sector is doing best with a whopping 10%, followed by Energy at 6.58% and Telecom at 4.31%. Don’t read to much into the Telecom number though as it includes only two reports. The Materials sector is the laggard in terms of surprises, with a median surprise of only 0.79%, and over 30% of the reports disappointing. However, that appears to be mostly a case of failing to meet very high expectations as the median growth reported so far is a very respectable 48.48%.
This explains why the market started rallying mid August. Now the next sector will come in play soon. The great earnings game continues.