Earnings Deliver Again

We expected another strong earnings season, and corporate America delivered with S&P 500 Index year-over-year earnings increasing 28% in the third quarter. A pickup in economic growth, strong manufacturing activity, and tax cuts were key drivers, but even without the tax reform boost, earnings growth exceeded 20%.

“Both revenue and earnings soundly beat expectations this earnings season, making prior assertions of an earnings growth peak premature,” said John Lynch, chief investment strategist for LPL Financial. “Companies’ outlooks were generally upbeat even in the face of tariffs and building wage pressures.” Not surprisingly, tariffs have been a popular topic on earnings conference calls, as shown in today’s LPL Chart of the Day. The good news is that most companies have indicated that the impact has been limited. Many companies are taking a wait-and-see approach before relocating supply chains, which we think is prudent.

Fewer Companies Have Cited Tariff on Q3 Earnings Calls

Generally upbeat company guidance suggests that the impact of tariffs on corporate profits may be manageable. Since third-quarter earnings season began, S&P 500 earnings-per-share estimates for the next four quarters have fallen by 1.1%, better than the historical average decline of roughly 2%. We have also been encouraged by firms’ ability to continue expanding profit margins amid rising wages, though opportunities for further margin gains in 2019 may be limited.

For a more complete review of third-quarter earnings season, please see our latest Weekly Market Commentary.

 IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not bank/credit union obligations and are not endorsed, recommended, or guaranteed by any bank/credit union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Member FINRA/SIPC

Tracking # 1-797001 (Exp. 11/19)