Earnings Season: Here To Save The Day
Yes, it’s that time again.
Earnings reporting season is upon us: the quarterly main event that investors look forward to, or dread, depending on the results.
And there is a lot riding on this year’s first-quarter earnings reports.
Over the next four weeks, hundreds of S&P 500 companies will report sales and profit results for the three months ending in March.
Expectations for those results are running very high right now.
In fact, Wall Street analysts were busy raising earnings expectations during the first quarter, as you can see in the graph below.
During the last three months, analysts boosted S&P 500 profit estimates by a record 5.4%. They’re now expecting earnings to jump 18.4% over the year-ago quarter.
That’s the fastest profit growth in seven years. But such a big jump in estimates is highly unusual.
Typically, earnings expectations are lowered as earnings season approaches, as you can see above.
In fact, over the last 10 years EPS estimates have declined an average of almost 4% leading up to reporting season.
What accounts for the difference this time?
Clearly, Wall Street has great expectations that recent cuts in corporate tax rates will boost bottom-line profits in a big way. But it’s still a bit too soon to say exactly how much impact the new tax law will have on immediate results.
After all, there are a lot of moving parts.
And what’s more, earnings estimates aren’t the only thing on the rise.
Wall Street analysts have likewise been busy during the first quarter raising their price targets for the S&P 500 index, as you can see in the graph below.
Analysts now predict the index will surge about 17% higher over the next 12 months, to 3,094 on the S&P, up from 2,670 today!
That’s the potential good news this earnings season: blowout results powered by Trump’s tax cuts propelling the S&P 500 higher and breaking stocks out of their recent funk.
What’s the bad news?
Wall Street has a bad habit of constantly overestimating the upside in stocks, and by a very wide margin. In fact, over the past 15 years, analysts have overinflated their target price estimates by a whopping 10.5%.
Great expectations indeed!
As I said, there’s A LOT riding on this earnings reporting season.
In my next article I’ll detail which sectors and stocks stand to benefit the most IF the analysts get it right.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch