Just over half of U.S. companies have reported since J.P. Morgan kicked off this earnings season on Oct 12^th, and some clear trends are in place.

• The S&P 500 is up 5.7% to a new all-time high since reporting started on the 12^th. European and Japanese markets have also been lifted over this period.
• On the surface, reporting numbers are terrific. 78% of reporting companies in the U.S. are beating consensus earnings estimates (by an average margin of 10.7%), and 715 are beating revenue estimates. Similar trends are being seen in Europe, with 66% beating on earnings and 74% beating revenue estimates.
• Nearly every company is bullish on end-market demand, and to the extent they are seeing problems, they are coming from meeting that demand. The market has been VERY forgiving when earnings misses are a function of the supply chain. Notably, recent reports from auto companies Ford and GM were very constructive on supply chain issues. The autos were the first industry to enter into a supply chain crisis and are now indicating the worst is behind them, which is very encouraging for the rest of the market.
• The biggest earnings beats have come from financial companies. The market usually doesn’t give financials much credit for blow-out earnings, and this is evident right now, as they have come from areas considered low-quality or unsustainable, like investment banking revenue, credit reserve releases or asset mark-ups. Unfortunately, banks continue to fail to show the loan growth or net interest margin improvement that would really get investors excited.
• Healthcare is another industry doing great, although the biggest beats have come from COVID testing (for example, Abbott Labs, Quest Diagnostics and Thermo Fisher), which are not considered to be sustainable. But broader trends for the industry remain solid.
• Technology has been decidedly mixed, with misses by tech and discretionary giants like Apple, Amazon, Netflix and Facebook, and beats by Microsoft and Google-parent Alphabet. Despite the huge misses from giants like Amazon, which guided for zero operating income in the final quarter of the year due to supply chain and staffing issues, the stocks of big tech have shown only modest declines with Microsoft and Alphabet driving to new all-time highs, which is important for the tech-heavy S&P 500 index.

All in, it’s clear that the market was too conservative on the earnings resiliency of Corporate America and has been pleasantly surprised by the posted results and management commentary, which has been, on the whole, constructive of the outlook going forward. This a very good sign going into year end.

Please click the applicable link(s) HERE to view important disclosures that relate to this blog and the investment recommendations and/or products mentioned in it.