Q4 Earnings Season Update
Earnings Season for the fourth quarter 2019 has begun. We are analyzing the data of the broad market and the individual stocks held in our portfolios. This report will seal the 2019 earnings growth rate. The consensus is that the growth rate will equal that of 2018—in other words, no growth. Normally, we would want to see growth rates in the high single digits, but the markets have been patient with what is believed to be transitory headwinds, such as the U.S. and China trade dispute.
These headwinds have dragged down the overall market growth, but it is expected to dissipate in 2020 and bring earnings back to a healthy rate. On December 31, the estimated earnings decline for Q4 2019 was -1.5%; however, when things are broken down by revenue exposure to the U.S. and revenue exposure outside the U.S., we clearly see the headwind effect. According to FactSet, S&P 500 companies that report more than 50% of its revenue in the U.S., the expected earnings decline is only -0.4%, while companies that report less than 50% of its revenue in the U.S., the expected earnings decline is -5.1%.
With the signing of the Phase One trade deal last week, things are moving in the right direction and has been one of several factors driving the strong start to the year. So far 86 of the S&P 500 companies have reported and the earnings growth rate has been better than expected. Of the companies that have reported as of Thursday’s market close, the earnings growth rate is .83% and being led by the Communication Services sector. It is much too early to tell if earnings will come in better than expected, but we are off to a good start. We will continue to monitor the environment to make sure things are moving in the right direction.