Market Minute - October 15, 2018

by Scott Rosenquist, CFA

Earnings Season

Third quarter earnings will start coming in this week with several of the large banks reporting last Friday.  Earnings reports typically start one or two weeks after the quarter as companies prepare their financial reporting.  This period is also known as “earnings season” and allows investors to analyze company’s financial performance and hear from management regarding strategy and outlook.

According to FactSet, third quarter earnings for the S&P 500 are estimated to grow by 19%.  This follows growth of 25% in the first two quarters of the year.  Earnings have been supported by a strengthening U.S. economy and tax cuts.  The chart below from JPMorgan’s Guide to the Markets shows additional information regarding corporate profits including margins and the U.S. dollar impact on foreign sales.

 

Yield Curve Graphic.png

 

This chart highlights the incredible strength that we’ve seen in the earnings of the S&P 500 and the high level of profit margins.  U.S. dollar strength can generally hurt multinational companies that do business overseas as their goods become more expensive and revenue generated internationally will translate into less when converting back to U.S. dollars.  Investors will be watching closely for signs from management regarding higher input costs, wages, and the impact of the dollar on their earnings not only for the third quarter but looking into next year as well.

 

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