By Don Schreiber, Jr.– WBI Founder and CEO
Earnings season is here, and so far, earnings are looking a bit barren. Although, perhaps a bit better than you would expect so far.
S&P 500 Earnings Kick-Off
Just last week, we published our 2019 Mid-Year Review and Outlook. Indications were pointing to businesses looking very nervous about their ability to beat expectations. We forecasted that the potential for a brutal earnings season looms large. Further, seventy-seven percent of companies that issued earnings-per-share guidance ahead of publishing financial results warned their upcoming numbers would fall short of Wall Street estimates. And according to FactSet, this guidance equates to the second-worst quarter on record going back to 2006.
According to Bloomberg as of 7/19/19, 77 companies have reported earnings in the S&P 500 so far, with earnings growth of 2.1% and revenue growth of 2.6%. Although this is a bit low, I’m hopeful seeing any earnings growth at all this earnings season. Revenue growth keeps getting cut, but market participants think the economy is strong. In my opinion, I wouldn’t be hurling money into some of these sectors. I also feel that the large companies who report early tend to have better performance than the rest of the group. The numbers within the first week of reporting tend to be a little bit stronger than the rest of the reporting cycle. If that holds true this time, I would suggest that the negative earnings expectations that analysts have had are well justified.
Russell 2000 Earnings Kick-Off
According to Bloomberg, as of 7/19/19, 109 companies have reported earnings in the Russell 2000 Index, with earnings growth of 2.04% and revenue growth of 2.32%. It’s too early to tell if the small and mid-cap companies will end up in positive earnings territory. The fact that Information Technology has dropped is not a favorable sign because that has generally been a fast growth area. I believe we can credit this drop to the terrible tariffs imposed by the Trump Administration. Smaller companies do not have enough flexibility in their consumer base and revenue stream to be able to offset tariffs.
We’re seeing a weakening in business conditions, and a GDP that is not as robust as folks would try to make us believe on both the central bank side and on the political front. The real story is probably a little bit less rosy than the massaged story. In considering these factors, it’s difficult to tell just where earnings and revenue may end up this quarter. Will market participants be left out to dry by the Fed? Only time will tell.
Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr. and should not be construed as investment advice. Don Schreiber, Jr. or clients of WBI may own stock/sectors discussed in this article. All economic and performance information is historical and not indicative of future results. This is not an offer to buy or sell any security.No security or strategy, including those referred to directly or indirectly in this document, is suitable for all accounts or profitable all of the time and there is always the possibility of loss. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from WBI or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, please consult with WBI or the professional advisor of your choosing. This information is compiled from sources believed to be reliable, accuracy cannot be guaranteed. Information pertaining to WBI’s advisory operations, services, and fees is set forth in WBI’s disclosure statement in Part 2A of Form ADV, a copy of which is available upon request.
Russell 2000 TR Index: measures the performance of 2,000 small-cap U.S. companies where dividends are reinvested automatically. S&P 500 TR Index: includes a representative sample of large-cap U.S. companies in leading industries where all cash payouts (dividends) are reinvested automatically.
You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of WBI Investments, Inc.