THE BOTTOM LINE
For investment insights on current market volatility, explore QS Investors on October's volatility and market rotation and ClearBridge Investors on potential opportunities from current market conditions
- Whatever the causes of the volatile stock market in 2018, rising corporate earnings have been more a source of support than a cause for worry.
- It’s certainly true that this quarterly earnings season has seen a small number of high-profile earnings shortfalls, including 3M, Caterpillar and now Amazon.
- But other bellwether companies such as Boeing, United Technologies and Netflix have seen earnings strongly exceed expectations.
- Indeed, among the 229 companies in the S&P 500 that have reported thus far, earnings have exceeded expectations by an average of 6.15%, with none of the 11 sectors of the index reporting net disappointments.
- Perhaps more importantly, aggregate earnings forecasts for the S&P 500 have risen strongly all year, up some 11.4% since early January.
- So there are arguably better reasons to explain the skittish tone of the markets, including the prospect of higher rates worldwide; global trade tensions; potential challenges to China’s breakneck growth; the rekindling of military rivalries between Russia and Nato, and more.
- But remember that the S&P 500 eventually recovered from its 11.4% downdraft in February when earnings expectations continued to climb, as they are doing today.
- Though negative surprises can unfold anytime, when stocks decline in the face of improving fundamentals, astute active investors may be able to take advantage of lower prices.
 Source: Bloomberg, as of close of business on October 25, 2018.
The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.
Forward earnings are a stock’s (or index’s) estimated earnings per share (or estimated index earnings), usually one-year ahead.