US Earnings Recession now in the Rearview Mirror
Looking back a year ago, one of our biggest concerns was lack of corporate earnings and revenue growth. Large cap US stocks experienced a rough patch where there were six quarters of year over year declining earnings. What a difference a year makes. Recent earnings reports have propelled both US and international stock prices higher this year. Based on data from FactSet, US corporate earnings for the 1st quarter are up over 13% from this time last year. Significant contributors include:
- Overseas recovery: Those companies with significant exposure to international markets have seen earnings growth of nearly 21% vs. 9.9% for those that are primarily US dependent. The international rebound has been a core theme of ours over the past 18 months and it finally is gaining momentum.
- The energy sector: Energy companies on a dollar basis lost $1.5 billion in Q1 2016. For the 1st quarter of this year, reported earnings are approx. $8.5 billion. A rebound in oil prices as well as cost cutting by oil companies are responsible for the gains.
To likely sustain current US stock valuations, this earnings recovery needs to continue. Valuations remain above long-term averages. We also continue to monitor policy developments including corporate tax reform and infrastructure spending. Positive catalysts from D.C. would provide a tailwind going forward.