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US Corporate Profits Article
Markets have recently taken on a slightly defensive air, with lower bond yields suggesting concern about economic growth.
However, in most instances economic news has confirmed the strengthening growth picture, with the most recent US Gross Domestic Product (GDP) release for the second quarter showing a strong rebound from the weak first quarter, with 4% growth on an annualised basis.
In a recent report on corporate earnings from Barclays*, 70% of the S&P 500 companies, the largest quoted companies in the US, have reported their second quarter results with 63% beating profit expectations and 65% beating sales expectations – healthcare, technology and energy have surprised on the upside. Whereas consumer staples such as food and detergents have lagged expectations, further undermining their expensive valuations.
These are encouraging numbers, particularly on sales, with the average company growing revenues by 7%. Earnings growth has been 16% year-on-year. Forecasts for this full year have been revised down slightly to a still respectable 13.9%, but encouragingly have been increased by 0.77% to 15.5% for next year.
At a time when some commentators are beginning to question whether the market rally is beginning to run out of steam, these figures provide some positive input.
*Source Barclays, US Earnings Scorecard (2Q14), 31st July 2014
