Tracking earnings can give you a good insight in to market and sector moves.
With over 29% of the S&P 500 reported, the third-quarter earnings season is well underway. The results thus far have been undeniably positive. Median reported EPS growth sits at nearly 11% and positive surprises outnumber negatives by over 5:1. As the Dow continually reaches for new highs, it’s clear that the market has taken a sharp turn from the worry days of mid-summer. As reports ramp up, the lagging corporate performance indicator will come into much clearer focus. These results will help dictate whether or not the market’s newfound enthusiasm has a leg to stand on.
So far, the sectors seeing the largest number of companies reporting have been Financials and Consumer Discretionary. Both sectors have performed well, with positive to negative surprise ratios of 5:1 and 9:1, respectively. Another top performer, the Materials sector is leading the pack in terms of median growth. Of the 20% of Materials companies reported, the median firm has grown EPS at nearly 46%, quarter over quarter. This number is expected to fall off sharply however as new reports come in. Median Q3 growth for all Materials firms listed in the S&P 500 is expected to come in at a still solid 21%.
For the full S&P 500, analysts are expecting 10% median third-quarter growth. Just two weeks ago, the expected growth was 8.6%. If this growth rate proves accurate, it will be slightly lower than the 12.9% seen last quarter. If on the other hand, positive surprises continue at the rate seen so far, the growth rate would be very similar. Going into each of the last two quarters, growth was expected to be much lower than it later proved to be. That pattern seems to be repeating itself.