It's earnings season and S&P 500 companies are off to a strong start. So far, 50 of 498 S&P 500 companies have reported aggregate year-over-year earnings growth of 16.5% and sales growth of 5.5%.
Earnings Season: The Numbers
Here's the S&P 500 breakdown across sectors (top-5 ranked by earnings growth):
- Materials: 1 of 25 companies reported sales and earnings growth of 12% and 32% respectively
- Technology: 9 of 67 companies reported sales and earnings growth of 7% and 27% respectively
- Financials: 12 of 65 companies reported sales and earnings growth of 8% and 24% respectively
- Healthcare: 4 of 59 companies reported sales and earnings growth of 7% and 13% respectively
- Real Estate: 1 of 31 companies reported sales and earnings growth of 4% and 4% respectively
It's early but if current profit growth holds for the quarter it would mark the third straight quarter of positive earnings after five straight quarters of declining growth starting in the second quarter of 2015.
This negative earnings streak was the worst since the dark days of 2009 when the country was in the grip of the Great Recession. Uncoincidentally, U.S. economic growth fell from 3.3% year-over-year in the first quarter of 2015 to 1.3% in the second quarter of 2016.
After bottoming out, growth is rebounding once again. Fourth quarter 2016 U.S. GDP growth came in at 2.0% year-over-year. Industrial Production hit its fastest pace since February 2015 yesterday, with +1.5% year-over-year growth in March versus +0.3% in February.
It's safe to say the earnings recession is over.
$XLK $XLY $XLP
Year-to-date sector performance confirms what we've been saying for some time now: The U.S. economy is accelerating. Take a look at the sector performance scoreboard year-to-date:
- Technology (XLK): +9.3%
- Consumer Discretionary (XLY): +7.4%
- Consumer Staples (XLP): +7.3%
The top-performing sectors are exactly what you'd expect to see as U.S. growth and earnings heats up. "Get growth, inflation and earnings right and you'll get most things in macro right," says Hedgeye CEO Keith McCullough.
Don't fight the facts.