Sunday, July 14, 2019

Earnings Growth Expected To Increase From Here

Second quarter earning season kicks into gear in the coming week and a lower bar seems set by a number of firms. Downward estimate revisions are occurring in twice the number as upward estimate revisions. As it stand now, second quarter earnings are estimated to be lower than the same quarter last year by 1.9%, yet I expect earnings growth in the quarter to be positive when the reporting season comes to a close.

Over time it is earnings and cash flow that is the weighing machine in determining a company's performance. As the below chart shows, the blue earnings line tracks closely to the move in the market, in this case the S&P 500 Index.

The second quarter earnings reports are anticipated to represent the low point in earnings growth this year. As a result, estimated earnings are expected to be up 7.9% looking ahead for the next 12-months. For the 2020 calendar year, earnings growth is estimated to be up 11.6%.

From an earnings perspective then, and all else being equal, the second quarter of this year looks to be the low point in earnings growth for the market.

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