It seems to us Wall Street has kind of forgotten about Q2 earnings season, which is understandable considering investors have had to contend with Speaker Pelosi’s visit to Taiwan; the Q2 GDP report; the Federal Reserve concluding its July meeting and raising the Fed Funds Rate by 75 bps and a red-hot debate about whether the US economy is or is not in a recession (for our money, we continue to believe we are not in recession, per the definition used by the National Bureau of Economic Research).
We want to come back to Q2 earnings season because, while earnings season is always a big deal, we think this earnings season matters a bit more than most, as it seems many Wall Street Bears have based their particularly pessimistic outlooks for stocks on the idea earnings expectations were excessively optimistic, so the market wasn’t nearly as attractively valued as it seemed to many, heading into July. Said differently, even when the S&P 500 was off about 23% year-to-date and trading at about 16x expected next twelve-month earnings (see chart; blue line – far right), many market prognosticators believed the market still wasn’t attractively valued as expected earnings would come in well shy of expectations (which meant the P/E on the market really wasn’t what we would consider to be a reasonably attractive 16x), and thus the market had further to fall.
So far, with about 400 companies within the S&P 500 having reported Q2 results as of August 4th, 77% have reported earnings above analyst expectations and 69% have reported revenues above analyst expectations; those “beat rates” compare with long-term averages of 66% and 62%, respectively. Maybe more importantly, the Q2 year-over-year blended earnings growth rate for those companies that have reported is 8.6%, a robust rate considering geo-political uncertainty and historically high inflation continue to weigh on consumer sentiment. The resiliency of corporate America never fails to amaze us.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 1407-BCI-8/8/2022