Consumers Had The Widest Financial Improvement In At Least 44 Years

Q4 earnings season has been good for the most part. As of February 7th, 323 S&P 500 firms had reported earnings (The Earnings Scout). EPS growth was 4.94% with an average surprise of 4.67% and 72% of firms beating estimates. Utilities led the charge with 18.61% EPS growth. Keep in mind, only 7 firms (25%) in that sector reported results. Overall sales growth has been strong too as it was 3.71% with an average surprise of 1.35%; 67% of firms beat sales estimates which is 2% above the 3 year average.

Health care had the highest sales growth as it was 12.46%. The health insurance stocks have been rallying recently despite the rise in Bernie Sanders’ chances of winning the Democratic nomination. The logic is that if Bernie wins the nomination, Trump will win re-election. The IHF health insurance ETF is up 5.37% since the end of January. If the election isn’t an issue, investors can refocus back on these solid results. The sector had the 2nd best EPS growth as it was 16.4%.

FactSet shows that the blended estimate for Q4 EPS growth is 0.7% which would make this the first quarter with positive EPS growth since Q4 2018. This growth rate is above the estimate at the end of the year which was -1.7%. Tech is responsible for 63% of the increase. Earnings estimates for 2020 imply a recovery is coming.

Source: FactSet Via The Market Ear

As you can see from the chart above, the percentage of S&P 500 firms proving guidance above next quarter estimates is 33% which is a few points above average. After the 3rd slowdown of this expansion, could we be on the precipice of a 3rd spike in the percentage of firms guiding above the consensus similar to 2010 and 2018? The situation might not be as great because there’s no tax cut and the economy isn’t coming out of a recession. However, a return to the long-run average EPS growth rate seems possible.

The table below shows the latest EPS growth estimates for Q1, Q2, and Q3.

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