According to the FactSet Earnings Insight report, Q2 earnings per share for companies in the S&P 500 have grown a remarkable 24.6%. Even with approximately 9% of companies yet to report, this number would easily be the 2nd best quarter in terms of growth since 2010. When thinking of ways to continue a bull market that has been going on for almost 9 years, this would be a decent place to start. But while the overall performance of S&P 500 companies has been solid this year, we are still seeing some significant deviations taking place.
Last Wednesday, July 25th, tech giant Facebook(FB) reported 2Q earnings after the close of trading. On the surface, Facebook’s numbers looked fine with earnings coming in ahead of analysts’ expectations. However, after lowering forward looking revenue guidance, the company was punished with a 22% selloff. This resulted in losing over $120 billion in market capitalization in a little over an hour. To give you an idea how much value that is, it represents more than the bottom 21 companies in the S&P 500………COMBINED!
Even though only 5% of companies in the S&P 500 have reported actual results for Q2 2018, the expectations for all companies from the market are clear: growth….and a lot of it. According to FactSet Earnings Insight report, analysts are expecting year-over-year earnings growth of 20% for 2Q 2018. If that number holds, it would be the highest earnings growth rate since 3Q 2010 (34.1%)...
Yogi Berra, while being known primarily as a great catcher, is also known for his collection of funny and oftentimes nonsensical quips. In fact, Yogi’s malapropisms became so popular that they eventually received special recognition as “Yogiisms.” One of my favorites is this: “When you come to a fork in the road, take it.” The market has certainly done its fair share of forking recently.
In the early summer months of 2011, a sovereign debt crisis was ripping through the Eurozone and putting pressure on asset prices across the globe. Fear of repeating the 2008 financial crisis was growing and concerns for the future of the Eurozone had investors begging for answers. In November of 2011, the European Central Bank (ECB) announced a change in policy that started a slide in European interest rates. A few months later, Mario Draghi delivered a speech to the world that included this now famous quote that the ECB would do “Whatever It Takes” to preserve the Euro.
With most of the S&P 500 having reported first-quarter earnings, we can conclude that this earnings season has been nothing short of bizarre. For the first time in a while, companies that beat earnings were not particularly rewarded, while those that missed earnings expectations were downright punished.
“The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity.” This quote came from President John F. Kennedy during a speech delivered on April 12, 1959. While this quote has been used to describe many situations over the years, it describes the current situation in market yields quite well.