Earnings Season is Drawing to an End and Sends a Good Signal for Stocks
The second quarter earnings results are wrapping up and the numbers are better than expected. At the end of the second quarter, the consensus believed earnings would decline in the S&P 500 by -2.7% (Year-over-Year)[i]. As of market close on Thursday, 96% of companies had reported their numbers and it appears the final number will not be as bad as analyst thought.
That is great news for U.S. stocks and another signal that the U.S./China trade dispute has not hurt company’s ability to make a profit.
On Thursday after the bell, Salesforce.com* reported their earnings result and the stock jumped up over 6% in after-hours-trading.
Here are the highlights[ii]:
- Revenue rose 23% in constant currency, reaching $4 Billion
- Adjusted EPS fell year-over-year to 66 cents mostly due to higher R&D costs
- Organic operating margin was 18.5%, up from 17.8% last year
- Current remaining performance obligation growth, a key performance indicator, exceeds guidance, up 25%
- Full-year sales growth expected at 21-22%
Earnings season is a great time to gauge the health and prospective profits of U.S. companies. One interesting item that we have kept an eye on is how tariffs can affect future earnings. A good way to uncover this is to note how many times the word “tariffs” has been mentioned on earnings calls. We noticed that at the start of 2018, that number was high and then declined by Q1 2019. However, we now see a spike back up of over 40% compared to last quarter. That tells us the market thought the dispute would be settled by summer, but now corporate executives are getting worried again.
As we have mentioned on previous weekly market updates, we do not think a U.S. recession is imminent. The economy is being pushed forward by consumers and recent data suggests that people are continuing to spend. In last week’s Market Update, we presented a detailed case why the data shows stocks are still a good investment in today’s environment. Click here to read it.
Tune into Making Money with Charles Payne to listen to Robert Luna, Surevest CEO & Chief Investment Strategist, provide his insights on the markets. The show begins at 11 am PST on Fox Business. As always, please reach out to your Surevest financial advisor with any questions
*Disclosure: Surevest clients and employees own stock in Salesforce.com.