Brexit developments continue to draw all the headlines, with my colleague Fawad Razaqzada characterizing today’s cabinet resignations as a disaster for PM May. While the updates from the UK continue to come in hot and heavy, we’re aware that some readers may be suffering from “Brexit fatigue”; thankfully, there are plenty of other market opportunities to highlight, including in major US stock indices.
After gapping lower this morning, the S&P 500 has fought back to break even after losing sessions the past five days. To put it politically, we’re highly skeptical of President Trump’s claim that the selloff is due to fears of “Presidential Harassment” in the wake of Democrats taking control of the House of Representatives. Instead, forward-looking equity traders are increasingly worried that the economy may be reaching peak growth.
According to the earnings mavens at FactSet, the “blended” earnings (using actual results for the 90%+ of the companies that have reported and estimated earnings for the companies that have yet to report) for the S&P 500 are expected to grow at 25.2% year-over-year, which would represent the highest growth rate since 2010. While the strong tax-cut-fueled growth is expected to carry over into the next quarter, the outlook for earnings growth starting in Q1 2019 is more mediocre.
The biggest theme from this earnings season has been traders’ extreme skepticism to just about any earnings report. As FactSet noted,
“Companies that have reported positive earnings surprises for Q3 2018 have seen an average price increase of +0.6% two days before the earnings release through two days after the earnings. This percentage is below the 5-year average price increase of +1.0% during this same window for companies reporting upside earnings surprises. Companies that have reported negative earnings surprises for Q3 2018 have seen an average price decrease of -2.9% two days before the earnings release through two days after the earnings. This percentage decrease is larger than the 5-year average price decrease of-2.5% during this same window for companies reporting downside earnings surprises”.
