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.

Denna information har sammanställts av IG, ett handelsnamn för IG Markets Limited. Utöver friskrivningen nedan innehåller materialet på denna sida inte ett fastställande av våra handelspriser, eller ett erbjudande om en transaktion i ett finansiellt instrument. IG accepterar inget ansvar för eventuella åtgärder som görs eller inte görs baserat på detta material eller för de följder detta kan få. Inga garantier ges för riktigheten eller fullständigheten av denna information. Någon person som agerar på informationen gör det således på egen risk. Materialet tar inte hänsyn till specifika placeringsmål, ekonomiska situationer och behov av någon specifik person som får ta del av detta. Det har inte upprättats i enlighet med rättsliga krav som ställs för att främja oberoende investeringsanalyser utan skall betraktas som marknadsföringsmaterial. 

Artiklar av våra analytiker

CFD-kontrakt är komplexa instrument som innebär stor risk för snabba förluster på grund av hävstången. 79 % av alla icke-professionella kunder förlorar pengar på CFD-handel hos den här leverantören.
Du bör tänka efter om du förstår hur CFD-kontrakt fungerar och om du har råd med den stora risken för att förlora dina pengar.
CFD-kontrakt är komplexa instrument som innebär stor risk för snabba förluster på grund av hävstången.