A benign inflation reading and a slew of earnings reports provide a reassuring backdrop for today’s trading session, with stocks on track to reverse the prior days’ geopolitics-inspired pullback.
We are in the thick of the Q2 earnings season now, with today’s reporting docket the busiest thus far in this cycle. Including this morning’s mixed reports from the likes of Verizon (VZ), Travelers (TRV), McDonald’s (MCD), Coke (KO) and others, we now have Q2 results from 115 S&P 500 members that account for 33.5% of the index’s total market capitalization.
While results from none of this morning’s bellwethers were particularly strong, McDonald's and Travelers notably missed earnings estimates. On deck for release after the close are reports from Apple (AAPL) and Microsoft (MSFT).
Total earnings for these 115 companies are up +8.1% from the same period last year on +3.6% higher revenues, with 67% beating EPS estimates and 52.4% coming out with positive revenue surprises. This is better performance than we have seen at this stage in other recent reporting cycles.
[Listen to: Richard Dickson of Lowry Research: No Signs of a Major Top - Still in a Bull Market]
The +8.1% earnings growth at this stage in Q2 is magnitudes better than what this same group of companies came out with in Q1 and the 4-quarter average (through Q1), and broadly in-line with the 4-quarter average growth pace (through Q1). The comparison is even more favorable on the revenue side, both in terms of growth rates as well as beat ratios.
There is some modest improvement on the guidance front as well. The improvement isn’t so much in terms of companies starting to guide higher, but rather marginally fewer guiding lower and qualitatively offering a more reassuring business outlook. Continuation of this trend through the rest of this earnings season will represent an improvement over what we have become accustomed to seeing in recent quarters, resulting in fewer negative revisions to forward estimates.
Hard to tell at this stage if we are at the starting point of a favorable shift in the aggregate earnings picture, but the results thus far do point in that direction.
