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S&P 500 1Q2018 Earnings So Far...

Apr 27, 2018

Earnings growth for the first quarter of 2018 has nearly doubled on a y/y basis (26.47% vs 13.92% prior). In the first quarter of 2018, stocks listed on the S&P 500 posted stronger earnings growth than in any of the previous 7 years. In fact, S&P 500 companies are on pace to be exceed the total first quarter earnings growth of the past 6 years combined, by more than 2.00%. Core earnings growth (ex-Energy) in the first quarter has been significant as well (24.64%), indicating that the strength in corporate earnings is more stable. A sector analysis shows how strong earnings have been.

Excluding materials, all other sectors in the S&P 500 have posted earnings that were above consensus. Nearly 50.00% of the S&P 500 energy sector has reported earnings. These companies saw a collective 69.70% increase in earnings in the first quarter, a higher growth rate than any other sector in the S&P 500. Since 2010, no sector in the S&P 500 has increased earnings by 69.00% in the first quarter of a year.

46.38% of Tech stocks have reported earnings with Amazon (AMZN), Facebook (FB) and Microsoft (MSFT) fueling a 38.12% Y/Y increase in earnings for the group so far. Large-cap tech is benefitting from strong earnings posted by companies such as Facebook and Microsoft, with the QQQ’s +1.89% this quarter. The QQQ ETF is outperforming the S&P 500 by nearly 4% YTD (+4.24% vs +0.44%), and positive surprises by S&P 500 tech stocks is quieting investors’ concerns about a cyclical downturn in the sector. 

Aside from materials (27.12% growth vs 39.76% projected), defensive sectors such as consumer staples (9.63% vs 6.36% projected) and utilities (11.37% vs 8.60% consensus) are among the worst performing in terms of the gap between realized and expected earnings.
Robust 1Q earnings growth is driving large-cap US equities higher, with the S&P 500 +1.21% (2.00% higher than 1Q2018 returns). At its current rate, the S&P 500 is on pace to provide solid returns in the second quarter after a relatively disappointing first quarter.

Similar to the aggregate index, sector performance has been very strong nearly across the board. The S&P 500 energy sector fell 5.88% during the first quarter, contrasting the +9.40% return being posted this quarter. S&P 500 healthcare stocks declined 1.22% over the first 3 month of 2018 but have risen 2.83% since the start of the second quarter. S&P 500 financials stocks have advanced by 0.59% in the second quarter, erasing more than half of the 0.95% loss in the first quarter. A similar case exists for the telecommunications and utilities sectors.