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Market Perspectives - November 2017

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Market Perspectives - November 2017

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Market Perspectives - November 2017

  1. 1. Market Perspective – November 2017 Experience Insight Impact Overview: With third quarter (Q3) earnings season largely complete, it appears the S&P 500’s sales and earnings growth trends continue to move in a constructive manner. Alongside domestic growth is the sharp rebound of international corporate profit growth. This month, we revisit corporate earnings and peer into future expectations. 1
  2. 2. Corporate Earnings Rebound Continues Experience Insight Impact • Year-over-year, Q2 S&P 500 earnings grew 7.2%, while sales grew 5.5%. • Since Q3 2016, sales and earnings growth have rebounded. Forecasters expect continued growth in the mid-single digits, which is a promising sign. Source: Bloomberg 2
  3. 3. Earnings Were Generally Better Than Expected Experience Insight Impact The earnings this quarter were generally better than expected. 74% of S&P 500 companies have reported positive EPS surprises (in aggregate 4.8% above expectations) and 66% have reported positive sales surprises (in aggregate 1.2% above expectations). Source: FactSet 3
  4. 4. International Outperformed Experience Insight Impact After years of underperformance, earnings growth of international equities started to exceed that of domestic equities. Source: Bloomberg 4
  5. 5. International Outperformed Experience Insight Impact For the first time in many years, earnings in Europe are exceeding expectations and are expanding at a pace. 5
  6. 6. International Exposure Helped Domestic Equities Too Experience Insight Impact Growth in the earnings and revenues of S&P 500 companies with higher international exposure exceeded those of more domestic-oriented companies. The green bars represent the growth of companies with sales of less than 50% in the U.S. 6
  7. 7. A Weaker Dollar Probably Helped Stocks Experience Insight Impact The dollar index declined 9.4% from 12/31/16 to 9/30/17. Dollar weakness, considering that ~40% of S&P 500 revenue comes from abroad (for companies with full geographic disclosures according to S&P), was likely a positive factor in earnings performance. Moving forward, we must be cautious, as a rebound in the dollar may negatively affect stocks. 7 Source: Bloomberg
  8. 8. Earnings Growth Expected to Continue Experience Insight Impact Notwithstanding likely future revisions, earnings growth is expected to continue. Potential policy tailwinds (e.g. tax reform) could add to the growth. 8
  9. 9. Market Perspective – November 2017 Experience Insight Impact Conclusion: The current bull market was accompanied by several years of negative earnings growth. However, for the past year or so, earnings have rebounded, a trend that is expected to continue. Moreover, the opportunity set in international markets appears attractive with earnings growth advancing abroad. We remain flexible as we monitor these trends, as equity markets have enjoyed a meaningful rally during this timeframe. 9
  10. 10. Disclaimer Experience Insight Impact Opinions expressed in this commentary may change as conditions warrant and is for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. Consider seeking advice from a professional before implementing any investing strategy. 10

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