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An Impressive Show from Corporate America
Second quarter earnings season was outstanding by many measures. Growth was very impressive, with S&P 500 Index earnings growing 25% year over year, nearly matching the 26% growth rate from the quarter before. Even when excluding the impact of the new tax law (estimated at 6-7%), earnings growth came in at 18-19%, which is still outstanding. A pickup in economic growth, strong manufacturing activity, tax cuts, and a weaker US dollar versus the year-ago quarter were the biggest drivers of strong growth.
Some other highlights:
- S&P 500 earnings have now increased at a double-digit clip five out of the past six quarters.
- Earnings have now exceeded consensus expectations for 37 consecutive quarters, based on Thomson Reuters data.
- The percentage of companies beating earnings estimates, at 80%, is the highest on record going back to 1994, based on Thomson Reuters data (and above last quarter's 78% beat rate).
- The magnitude of the upside surprise on earnings, at 4%, was slightly above the post-1994 average.
- Revenue grew 9.4% year over year, the fastest pace since 2011. Revenue's upside surprise of 1.4% is one of the largest of the current economic expansion and bull market.
At a sector level, Energy reported the highest (year-over-year) earnings growth of all eleven sectors at 125.1%. The unusually high growth rate for the sector was due to a combination of a year-over-year increase in oil prices and a comparison to unusually low earnings in the year-ago quarter.
Growth rates, beat rates, and upside surprises on both the top and bottom lines were particularly impressive given the implementation of tariffs and building wage pressures. Continued strong earnings could drive equities higher during the rest of the year, but with little progress on China trade negotiations, midterm elections looming, and the index already up more than 8% year to date, any additional gains may come with higher volatility.
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Volume was light last week ahead of the long holiday weekend, but the major equity indexes still managed to churn higher. The tech-heavy NASDAQ outperformed all others and crossed the 8,000 line for the first time. Both Amazon.com and Apple shares rose after an analyst upgraded Amazon and Berkshire Hathaway increased its stake in Apple. Economic news was generally favorable and investors viewed the revised trade agreement with Mexico as a positive.
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> GDP:
Last week, the US Bureau of Economic Analysis revised the second quarter GDP data to an annualized growth rate of 4.2%. The revision primarily reflected upward revisions to nonresidential fixed investment, private inventory investment, federal government spending, and state and local government spending. The final figure will be released at the end of the month.
> Income and Outlays:
The July personal income & outlays report is exactly what the Federal Reserve is looking for: moderation to still solid levels of income and spending growth and steady readings on inflation that are on target. Personal income increased $54.8 billion (0.3%) and disposable personal income (DPI) increased $52.5 billion (0.3%) in July.
> Amazon:
Just four weeks after Apple crossed the $1 trillion market cap line, Amazon joined the club. The share price of the e-commerce behemoth hit an all-time high of $2,050.27 on Tuesday taking its value above the massive milestone. Amazon shareholders have already had an extraordinarily good year. The company's stock has surged more than 70% since January, outperforming the broad market benchmark S&P 500, which has risen a healthy 8% on the year.
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Think the Internet is in the "Cloud?" Think again.
Over the course of the past decade, cloud computing has evolved from being something service providers told companies they should be adopting to becoming the technological lifeblood that runs through most modern enterprises.
A common misconception is that most of our information is transmitted through satellites. But fiber optic cables along the ocean floor actually form the backbone of the internet, transmitting about 99% of all data.
The first transcontinental cable - laid in 1858 - ran from Ireland to Newfoundland, and made telegraph communication possible between England and Canada. Today's fiber optic technology has made transmitting massive quantities of information fast and cost-effective. The brief video below offers a fascinating look at how we're all connected.
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we have access to institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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