In the world of capital markets, few clichés ring truer than “money makes the world go ‘round.” When analyzing public companies, investors generally use a company’s quarterly earnings report to determine whether they are making money or not. With the reporting of fourth quarter 2019 earnings starting to wrap up, now is an ideal time to get a pulse on whether U.S. companies are helping the world turn or if earnings growth is coming to a screeching halt. 

As each earnings season approaches, multitudes of analysts fine-tune their earnings estimates for every company under their coverage. Naturally, some firms will miss the consensus estimate and feel the wrath of market as efficient markets realize the company is not as profitable as they thought and therefore the stock is worth less. However, more often than not, the company meets or beats expectations. With approximately 95.2% of S&P 500 companies having reported fourth quarter earnings, 69.4% of companies beat expectations while an additional 7.7% managed to meet expectations. This falls ever so slightly below the longer-term average (since 2013) of 70.0% of firms beating expectations and 8.9% matching the estimates. However, with about 5% of companies still left to report, we find ourselves well within the margin of error to consider this quarter in line with the average we have seen throughout this economic expansion.

Perhaps more important than companies’ individual performance versus analyst estimates is the continued performance of S&P 500 index earnings as a whole. Shifting gears, again waiting for the final 5% of companies to report, S&P 500 12-month earnings look to have grown by 5.5% relative to 12 months ago. In fact, 12-month index earnings growth has been positive every quarter since the fourth quarter of 2016. While geopolitical events, pandemic risks, and other exogenous shocks may startle markets and dampen earnings in the short run, market fundamentals, such as earnings, drive long-term growth. While perpetual growth is unlikely, the market’s current underlying fundamentals look to keep the world spinning. 

Sources: JP Morgan and S&P Global 

This is intended for informational purposes only and should not be construed as legal, investment or financial advice. Please consult your legal, investment and financial professionals regarding your specific circumstances

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

Savant Wealth Management is a Registered Investment Advisor. Different types of investments involve varying degrees of risk. Savant’s marketing material and/or rankings should not be construed by a client or prospective client as a guarantee that they will experience a certain level of results if Savant Wealth Management is engaged, or continues to be engaged, to provide investment advisory services nor should it be construed as a current or past endorsement of Savant Wealth Management by any of its clients. Please see our Important Disclosures.