Markets Focus On Quarterly Earnings Reports - Economic Highlights
Earnings remain front and center today, with last night's favorable reports from Intel ( INTC ) and Netflix ( NFLX ) and this morning's Citigroup ( C ) report focusing the market's attention on the Q2 reporting cycle. Market participants appear happy with these reports, though the aggregate picture emerging at this admittedly early stage is less than reassuring.
Citigroup is the latest of the big banks to have come out with positive quarterly results, with earnings not only coming in ahead of estimates but also representing a notable improvement over the year-earlier period. Granted, a big reason for the favorable comparisons to the year-earlier period are a function of lower litigation expenses, which seem to be winding down. That's the case with the big banks, but the brokers appear to be just getting started on that front, as today's big litigation-related charge in the Goldman Sachs ( GS ) reports shows.
The litigation-expense tailwind notwithstanding, results for the sector are tracking better relative to what we have seen from the big banks in other recent quarters, reflecting a combination of steadily improving core fundamentals and tight cost controls in an otherwise unhelpful interest rate backdrop.
It is still relatively early, but the overall sample of results thus far is slowly becoming representative enough, enabling us to take stock on this reporting cycle relative to other recent reporting cycles. Including this morning's reports, we now have Q2 results from 48 S&P 500 members that combined account for 18.5% of the index's total market capitalization. Total earnings for these 48 companies are up +6.3% on +2.2% higher revenues, with 75% beating EPS estimates and only 35.4% coming ahead of top-line expectations.
Putting the Q2 results thus far in context, the earnings growth pace is below what we saw from the same group of companies in Q1, but better than the 4-quarter. Revenues are on the weak side, both relative to Q1 as well as the 4-quarter average. The revenue weakness is also apparent on the surprises front - it is tracking even below the unusually low level that we saw in Q1.
We haven't seen that many bellwether results from outside of the Finance sector at this stage, though market participants appear to be very happy with what they saw from Intel and Netflix after the close on Wednesday. The Intel report is no doubt a positive given the slew of negative pre-announcements from its peers, though we have to acknowledge the big contribution of a lower tax rate to the earnings beat. Netflix isn't exactly an earnings story in the traditional sense; they are about as focused on earnings as Amazon ( AMZN ) is.
We will see Google ( GOOGL ) has to offer after the close today, but this is overall a weak start to the Q2 reporting season, which many hoped would top expectations given the low levels to which estimates had come down.