With more than half of companies in the S&P 500 having reported Q1 2017 results, 77% of companies have beaten EPS estimates, compared to the 5-year average of 68%. More important, perhaps, we are seeing top-line growth also coming in much stronger than expected, a departure from previous quarters. 68% of companies have beaten revenue estimates compared to the 5-year average of 53%. Earnings beats are being led by cyclically-geared sectors – Financials, Tech and Energy. For the first time since 2011, we are on track for double-digit earnings growth this quarter (around 13%).
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The corporate results season so far is important in explaining why equity markets have not reacted to the weak Q1 2017 GDP release last week, which came in at 0.7% annualized growth, the slowest pace for nearly three years. There are some well-known problems with seasonal adjustment factors in the national accounts data, and we are more likely than not to see upward revisions to the Q1 2017 GDP data, a pattern we have seen since the great financial crisis. Consensus has been lowering expectations for earnings in subsequent quarters, but with global growth remaining firm and picking up especially in Europe, we could continue to see earnings beat expectations against a lowered bar.
Michael Wang
Equity Strategist at ETF Securities
