US earnings season preview

After a first quarter dominated by heightened volatility and trade war concerns, can earnings season restore a hint of normality?

US flag
Source: Bloomberg

This week sees US earnings season begin once more, as companies unveil their latest quarterly figures. While some begin reporting on Wednesday, it is now JPMorgan and other banks on Friday that herald the opening of the season in August, now that Alcoa has relinquished its place at the head of the season.

Earnings in the S&P 500 are expected to rise 17.1%, according to a survey by FactSet, following from a 23% rise in 2017, the best growth in seven years. 2017 also saw profit margins expand to an all-time high of 10.8%. In fact it is hard to find much bad news about the current state of play for US corporates. Sales per share have continued to climb, with 2017 seeing a definitive breakout from the 2014 peak. This comes despite a 33% drop in energy sector sales, and with the oil price having rebounded, sales could be given another boost.

A weaker dollar has provided a firm tailwind for US earnings, especially for the tech sector, which has seen margins rise overall from 18% to 24%, and while the currency has recovered somewhat, overall continued USD weakness should remain a positive for US earnings.

2018 as a whole is expected to see earnings growth of 18% and sales growth of 7%, again according to FactSet. US gross domestic product (GDP) is expected to be in the 3.5% to 4% range for the year, and a weaker dollar may add to this.

In sum, we can look forward to four factors driving the performance for earnings season this time around:

  1. Strong economic growth both in the US and overseas. Earnings and economic growth tend to be correlated, and while some softness has been seen in Europe and Japan, the overall picture remains solid.
  2. New US tax law. Earnings estimates have already been boosted by around 6% thanks to the new tax cuts, and is a marked change from the average quarterly change of a 3-4% decline in estimates. Increased capital investment and cash repatriation provide another positive factor.
  3. Solid US manufacturing. With the ISM manufacturing purchasing managers index (PMI) remaining near 60 for the first quarter of the year, there is a strong economic underpinning to performance.
  4. Weak US dollar. A weaker currency will provide a boost for US multinationals, and with around a third of S&P 500 revenues coming from outside the US, further depreciation will be beneficial.

Investors need to keep a close eye on the commentary surrounding earnings reports. In particular this time around, we are watching for comments on trade policy and the possible impact of tariff wars, along with how the wage picture is faring and whether this is having a bearing on performance.

Denne informasjonen er utarbeidet av IG, forretningsnavnet til IG Markets Limited. I tillegg til disclaimeren nedenfor, inneholder ikke denne siden oversikt over kurser, eller tilbud om, eller oppfordring til, en transaksjon i noe finansielt instrument. IG påtar seg intet ansvar for handlinger basert på disse kommentarene og for eventuelle konsekvenser som et resultat av dette. Ingen garanti gis for nøyaktigheten eller fullstendigheten av denne informasjonen. Personer som handler ut i fra denne informasjonen gjør det på egen risiko. Forskning gitt her tar ikke hensyn til spesifikke investeringsmål, finansiell situasjon og behov som angår den enkelte person som mottar dette. Denne informasjonen er ikke utarbeidet i samsvar med regelverket for investeringsanalyser, så derfor er denne informasjonen ansett å være markedsføringsmateriale. Selv om vi ikke er hindret i å handle i forkant av våre anbefalinger, ønsker vi ikke å dra nytte av dem før de blir levert til våre kunder. Se fullstendig disclaimer og kvartalsvis oppsummering.

CFDer er komplekse instrumenter som innebærer stor risiko for raske tap på grunn av giring. 79 % av alle ikke-profesjonelle kunder taper penger på CFDer hos denne leverandøren.
Du burde tenke etter om du forstår hvordan CFDer fungerer og om du har råd til den høye risikoen for å tape penger.
CFDer er komplekse instrumenter som innebærer stor risiko for raske tap på grunn av giring.