The earnings outlook for American companies is looking up
#Earnings #Growth
Here's an interesting observation worth noting. If companies meet or beat Wall Street earnings expectations for the fourth quarter of 2016, it would mark the first time the S&P 500 has seen year-over-year growth in earnings for two consecutive quarters in almost 2 years.
That would obviously mark a huge step in the right direction.
For the record, earnings declined for five consecutive quarters, through the second quarter of 2016. That hadn't happened since the dark days of 2009, when the U.S. was mired in the worst economic period since the Great Depression.
What a difference a few months can make: Earnings Growing
#Energy #Bankruptcies
As you can see in our Chart of the Day below, we're now lapping this nasty period of earnings contraction. Growth will be a lot easier to come by heading into the first quarter of 2017.
Nowhere is this more evident than in the Energy sector (XLE). Wall Street analysts expect the sector to print declining earnings for the fourth quarter, but then snap back (rather dramatically actually) heading into 2017. Earnings estimates put profits up +727% for the first quarter.
No, that is not a misprint.
Following a protracted period of oil price declines, profitability fell and energy bankruptcies spiked. According to industry estimates from law firm Haynes and Boone:
"These bankruptcies, including Chapter 7, Chapter 11, Chapter 15, and Canadian cases, involve approximately $74.2 billion in cumulative secured and unsecured debt. As of December 14, 2016, 70 producers have filed bankruptcy so far this year, representing approximately $56.8 billion in cumulative secured and unsecured debt."
This has buoyed estimates for S&P 500 earnings more broadly. The aggregate index is expected to be up +13.2% year-over-year in the first quarter. That's versus 3.2% expected in the fourth quarter of 2016 and actual growth of 5.3% for the third quarter.
What to Buy & What to Sell
#GrowthAccelerating $SPY $XOP $TLT $GLD
We like the S&P 500 and high beta stocks – companies that tend to rise along with the broader index like U.S. Oil & Gas Exploration and Production (XOP). This is what you want to own when the U.S. economy is accelerating.
Conversely, continue to sell U.S. growth slowing exposures like Long Bonds (TLT) and Gold (GLD).
