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Earnings Season Review: When Not That Awful Is Good Enough


FactSet just updated their second-quarter earnings season stats for S&P 500 companies so let's take a look at just how awful things are:

-69% of companies are beating earnings estimates (vs. 5-year average of 67%)
-54% of companies are beating sales estimates (vs. 5-year average of 55%)
-Q2 earnings have declined -3.5%, which is less awful than the -5.5% estimated as of June 30.
-Health care and tech have had the highest percentage of companies reporting earnings beats

So the same trend that's persisted for several quarters is still in place — earnings are nothing to write home about.

But they are just a little better than expected, so investors are holding their noses and buying.

Or maybe they're just fooled by central banks drenching the market in monetary perfume?

However, Q2 will go down as the fifth straight quarter of earnings declines, something we haven't seen since the 2008-2009 crisis.

I accept the market for what it is, and I always roll my eyes are melodramatic bear cases because they always omit the most important variable — WHEN.

It does feel somewhat “wrong” for SPX earnings to be so weak while the index is regularly making new all-time highs. That's creating stretched valuations.

Aside from Telecom Services, all services have forward P/E's is above 5 and 10-year averages:


But consider the flip side.

Stock prices are a current representation of the perception future earnings and cash flows.

Pretty soon, companies will be facing weak comps, so stocks could simply be discounting a return to normalish growth.

Maybe that's simplistic thinking, but complex thinking has gotten the permabears absolutely nowhere.