Earnings Growth Expected To Increase From Here

By David Templeton of HoranCapitalAdvisors

Portfolio Manager & Principal, HORAN Capital Advisors • Jul 15, 2019 at 5:03 AM EDT

Second-quarter earning season kicks into gear in the coming week and a lower bar seems set by a number of firms.

Second-quarter earning season kicks into gear in the coming week and a lower bar seems set by a number of firms. Downward estimate revisions are occurring in twice the number as upward estimate revisions. As it stand now, second-quarter earnings are estimated to be lower than the same quarter last year by 1.9%, yet I expect earnings growth in the quarter to be positive when the reporting season comes to a close.

Over time it is earnings and cash flow that is the weighing machine in determining a company's performance. As the below chart shows, the blue earnings line tracks closely to the move in the market, in this case the S&P 500 Index.

The second quarter earnings reports are anticipated to represent the low point in earnings growth this year. As a result, estimated earnings are expected to be up 7.9% looking ahead for the next 12-months. For the 2020 calendar year, earnings growth is estimated to be up 11.6%.

From an earnings perspective then, and all else being equal, the second quarter of this year looks to be the low point in earnings growth for the market.

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