As we wrote in our mid-quarter update (Looking Better, Living Longer, Having More), earnings growth continues to be broad-based and has accelerated despite steeper comps from Q3 to Q4 of 2017. The 6th consecutive quarter of Y/Y earnings growth is solidified with 412 out of S&P 500 companies having reported for Q4. Top line growth is running hottest of those 6 quarters. S&P 500 constituents have comped +7.9% so far which is the steepest growth rate since Q3 of 2011. Where to next is an obvious question with top-line estimates for Q1 and Q2 of 2018 at >7% for the index in aggregate.
- Earnings Growth: Earnings growth for the S&P 500 and Nasdaq 100 have come in at +14.8% and +16.1% YY, respectively. The 14.8% growth rate for Q4 2017 came on top of 6.4% Y/Y growth in Q4 2016. With the S&P 500 facing a 14.6% growth rate from Q1 of 2017, a second derivative slowdown would be a surprise relative to current estimates (Q1 Bloomberg estimate is +16.6%)
- Broad-Based: Earnings growth for Q4 has come in definitively positive in every sector of the S&P 500. On the low-end of the growth spectrum, utilities and industrials have printed +5.1% and +6.0%. On the high-end, energy, materials, and information technology have printed +102%, +38%, and +22%.
- Sales Growth Surprises: As mentioned, a 7.9% comp is tracking at the highest growth rate since Q3 of 2011. Mainly because of positive revisions and a growth accelerating backdrop, that growth rate has beat estimates by 1.2%. This is the widest gap in “actual” vs. “estimate” for the S&P 500 since Q4 of 2014. Only the energy sector has missed estimates on the top line this quarter.
- Information Technology: This sector is again tracking to beat earnings estimates by a wider than average margin. Although this beat margin has compressed because of the very rosy growth picture that has been steadily baked into forward estimates. In the very last visual below we show the beat rates for the information technology sector in all four quarters of 2017. With 58/67 having reported, the aggregate earnings growth number for the sector is +22.4% YY. Although it’s a slight deceleration from +23.7% YY for Q3, it came on a more difficult base rate (+12.0% YY for Q4 of 2016 vs. +6.1% for Q3 of 2016). It gets much more difficult in Q1 where the consensus earnings estimate is +20% Y/Y on top of +21.7% YY in Q1 of 2017.
