First quarter earnings season is officially underway after
JPMorgan (JPM) kicked things off this morning with a strong first
Market participants are looking forward to companies revealing their quarterly reports as results are expected to be strong yet again.
According to FactSet, first quarter earnings per share in the S&P 500 are expected to grow 17.2% year-over-year with revenue up 7.1%. This is especially impressive considering earnings grew 14% with revenue up 7.9% in the first quarter of 2017. Last quarter, earnings grew 15% with revenue up 8.3%.
The Tax Cuts and Jobs Act, and strong economic growth are boosting corporate profits.
S&P 500 earnings are expected to grow for the seventh straight quarter. What's more, all eleven sectors are expected to report earnings growth for the second consecutive quarter.
Looking at first quarter earnings growth expectations by sector: Energy +79%, Materials +40%, Financials +22.7%, Information Technology +22%, Telecommunications +19%, Industrials +13.3%, Utilities +12.7%, Health Care +10%, Consumer Staples +8%, Real Estate +6%, and Consumer Discretionary +5.9%.
Excluding the Energy sector, which accounts for just 6% of the S&P 500's market value, first quarter earnings are expected to grow 15.3%. Excluding the Energy and Materials sectors, which account for just under 9% of the S&P 500, earnings are expected to grow an 14.6%. Information Technology has a 25% weighting, which is ten percentage points higher than the next largest sector, Health Care.
JPMorgan reported strong results this morning, but the stock is down 3% in a sell-the-news response. Investors may grow cautious if that becomes a trend this earnings season.
Second quarter earnings are currently expected to grow 18.8% with revenue up 7.7%. Estimates for the following quarter tend to come down during earnings season as companies set the bar at an appropriate level, leaving room for upside three months down the road. The first quarter was an exception to this norm, due in part to the lower corporate tax rate.
Looking at 2018 as a whole, earnings are expected to grow an impressive 18% with sales up 6.6%. That comes on top of 11% earnings growth with 6.4% revenue growth in 2017. Earnings growth is expected across every sector for the year as well.
The S&P 500 currently trades at 17.5x adjusted earnings estimates for the year or 17.2x on a GAAP basis.
Large cap bank and mega-cap earnings will dominate the news flow next week. Three very heavy weeks of earnings reports will follow before volume tapers off in mid-May when retail earnings season picks up.
Notable earnings out next week include:
- Monday: Bank of America (BAC)... Netflix (NFLX)
- Tuesday: United Health (UNH), Johnson & Johnson (JNJ), Goldman Sachs (GS)... IBM (IBM), CSX (CSX)
- Wednesday: Morgan Stanley (MS), Abbot Labs (ABT), US Bancorp (USB)... American Express (AXP), Alcoa (AA)
- Thursday: Novartis (NVS), Nucor (NUE), Blackstone (BX)
- Friday: General Electric (GE), Procter & Gamble (PG), Honeywell (HON), Schlumberger (SLB)