Q2 ’18 Earnings – A Couple of Flies in the Ointment

The Bespoke Report is – in my opinion – one of the best weekly summaries of market-related, and econ-related and investment-related topics on the Street. Bespoke, founded by Paul Hickey and his team years ago, came out of Laszlo Birinyi’s firm, and I’ve always told readers the Bespoke work is “value-added” and great insight for a reasonable price.

While I keep reading in Twitter and elsewhere all the pundits talking about the Q2 ’18 “strong” earnings season and the substantial “beat rates” (the beat rate is the degree to which individual EPS and revenue actual results exceed the Street consensus) the fact is Bespoke has now pointed out for the 2nd week in a row that investors are seeing “a weaker sequential reading for the second quarter in a row” for revenue.

Also Bespoke is noting that “the percentage of companies raising guidance is down quite significantly, too” and “after five straight quarters where more companies raised guidance than lowered guidance, this season is seeing a reversal of that trend”.

Tomorrow I’ll take a look at a couple of other metrics for readers. As a believer that we are seeing a secular bull market that still has room to run, just don’t buy into all the Street pablum.

The fact is though – the SP 500 earnings data found below – shows no changes in trends yet.

Thomson Reuters IBES data: (Source of forward earnings is “This Week in Earnings”)

  • Fwd 4-qtr est: $168.88 vs last week’s $168.40
  • PE ratio: 16.7x
  • PEG ratio: 0.75x
  • SP 500 earnings yield: 5.99% vs +6.01%
  • Y/Y growth of fwd est: +22.23% vs last week’s +21.48%

Note the jump in the y/y growth of the forward estimate to 22%, which is exactly inline with 2018’s estimated EPS growth for the SP 500 of 22%.

That’s good news – there has been little trimming of forward estimate growth (yet) despite the Bespoke comments above.

However readers need to be reminded again that these forward estimates are not a market timing tool. The forward estimate didn’t peak until the third week of July, 2008, about 10 – 11 weeks prior to the collapse of Lehman.

The forward estimate gave a better leading indicator reading with the collapse of Technology in 2001, 2002 although I was just starting to follow the data and had no frame of reference.

SP 500 earnings remain robust, but heed Bespoke’s caution and continue to monitor the data.

With all the strum-and-drang around FANG and Tech this week, the Nasdaq Composite was down 1% on the week, but is up almost 4% (+3.93% to be exact) over the last 4 weeks.

Thanks for reading…


2 Responses to “Q2 ’18 Earnings – A Couple of Flies in the Ointment”

  1. Alan Miller

    Many people are worried about a trade war, however if the efforts by President Trump to negotiate fair trade agreements, there will be even better GDP numbers in the future. Nothing ventured, nothing gained, and we will continue to be taken advantage of by the countries we trade with.

    • Brian Gilmartin

      Wasn’t a trade or political comment – today’s post. I agree with your conclusion, but we’ll need to see some progress first.


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