Chart of the week

Earnings guidance trails off as economic data remains firm

See how the drivers behind the long-running bull market are evolving as we reconcile strong economic data with markedly below-average Q3 earnings-per-share guidance.

September 28, 2018 | 1 minute read
Positive preannouncements among S&P 500 companies
  • Several U.S. economic releases in recent weeks have surpassed their decade-long records, highlighting the broad-based strength of the U.S. economy today. U.S. manufacturing activity, for example, reached a 14-year high while consumer confidence rose to its highest point since 2000.1,2
  • The U.S. stock market has risen more than 7% since the start of the third quarter, reaching a new all-time high this week.3
  • Within this context, it’s important to note that some of the drivers behind the current, long-running bull market – accommodative central bank policy, ultralow Treasury yields and strong corporate earnings growth – appear to be evolving.
  • Long-term U.S. Treasury yields nearly touched a 2018 high this week buoyed by months of firming inflation data. Meanwhile, the Fed raised rates on Wednesday for the third time this year and removed language in its accompanying statement that monetary policy remains accommodative.4,5
  • Looking at corporate earnings, nearly 100 of the S&P 500 companies have issued earnings guidance as we head toward the end of Q3. As the chart shows, a markedly lower number have issued positive guidance for Q3 than any of the previous four quarters.6 The percentage of companies issuing negative guidance is also above its 5-year average.6
  • Given the recent economic and market milestones, investors may be well served in preparing themselves for moderating data in the months to come. Changing market environments often lead to increased market volatility.

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