Ninety percent of S&P 500 companies have reported financial results for the third quarter marking another blowout performance.
Seventy-eight percent of companies have reported positively, well above average over the past five years, and welcome surprise for us investors.
Also, S&P 500 bottom-line profits grew 25.2% year over year. That’s the highest earnings growth rate in eight years.
And top-line sales are running ahead of expectations too. S&P 500 revenue growth is 9.4% year over year with 61% of companies posting upside sales surprises.
Wall Street analysts are raising their earnings estimates for the fourth quarter, now expecting 14.2% profit growth and 21% earnings growth for all of 2018. That estimate is above where it stood at the start of the quarter and is likely to move higher.
Still, a funny thing happened along the way to record earnings growth this quarter.
Despite more companies beating estimates for both sales and profits, and by a wide margin too, investors are not rewarding positive earnings beats. And for companies that miss, look out below.
Companies reporting positive surprises have seen their stock prices advance a mere 0.6% on average. That’s only about half of the move stocks averaged over the past five years when posting positive earnings.
Meanwhile, companies with negative earnings have seen their stock prices tumble by an average of almost 3%!
This is a Troubling Sign
If investors aren’t getting excited about the strongest earnings growth in eight years, then how will they react if earnings growth slips?
Perhaps we can chalk this up to increased negative sentiment after the S&P tumbled 10% through October.
I expect once stocks stabilize and move higher again, investor sentiment will improve.
But I’m keep a watchful eye on this dynamic. You need to as well. It’s a telling signal.
If sentiment doesn’t improve during a time of record profit growth, watch out.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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