Panicky over China’s health crisis, U.S. investors have taken their time coming around to various facts that speak well of America’s corporate health. One is earnings season, which should be doing a lot to calm fears about growth prospects in 2020.
It’s safe to say they’re catching up.
With more than half of the S&P 500 reporting, the tea leaves read well. Among other things, analyst forecasts are holding up. At $175.30 a share for the full index, the consensus 2020 estimate is down just 0.1% from three weeks ago. Almost always during earnings the decline is much larger.
That makes sense, considering that among S&P 500 companies that have disclosed results, 185 have revised their future profits higher, more than twice the number that lowered them, data compiled by Bloomberg Intelligence show.
“It’s not just the Apples and the Amazons, but the Coca-Colas and Pepsi Colas and utilities,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management. “Earnings are starting to pick up across the board. There is strength in corporate balance sheets. That shows there is strength in the economy.”
Any sign companies can make good on full-year forecasts will be taken well by investors after 2019, when expectations for annual profit growth steadily deteriorated and earnings ended barely higher. Currently, analysts expect profits to rise 8.3% this year, data compiled by Bloomberg Intelligence show. Economically sensitive sectors are projected to see some of the biggest gains, with consumer discretionary stocks set for a 7.4% increase and energy a nearly 13% earnings jump for the year.
“As we look out the next 12 months, analysts are revising up earnings and markets tend to look at those revisions as a catalyst to move higher,” said Matt Miskin, a market strategist at John Hancock Investment Management. “As long as earnings can move higher in 2020, we think that helps this market move into that rich multiple.”
It barely mattered last week when a handful of tech ultra-caps delivered results that blew past Wall Street estimates. Sure, Apple Inc., Microsoft Corp. and Amazon.com Inc. surged to records on better-than-expected sales or earnings. But both the S&P 500 and Nasdaq 100 ended with a second straight down week.
Tech stocks are back on top now, rising for three days to bring their year-to-date gain to more than 8%, best in the S&P 500. Still to come are reports from about 30% of the S&P 500 market cap, with Twitter Inc. and Cisco Systems Inc., among others, releasing results over the next week.
Data showed this week that U.S. manufacturing rebounded sharply in January, signaling growth in the beleaguered sector for the first time since July. This helps explain the stabilization in earnings sentiment, according to Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.