2nd Quarter 2014 Results show Earnings and Revenues Growth
Sources: Rates Data —Bloomberg Markets as of 7/28/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers as of 7/28/14
2nd Quarter Results show Earnings and Revenue Growth
Earnings season is about half way over as 228 of the S&P 500 companies have reported Quarter 2 results as of July 28. Since the economic recession occurred 6 years ago, companies have cut costs and gone a long way to become leaner, more efficient operators. This has resulted in profit margins that are high from a historical standpoint and have allowed companies to continue to grow their earnings despite having stable sales. This earnings growth has allowed companies to remain evenly valued from a historical standpoint as JP Morgan notes that Large Cap U.S. Stocks are actually 3.4% cheaper than historical averages with a Current Price to Earnings ratio of 15.6 as of the end of the second quarter vs. the 20 year average of 16.2.
We are encouraged to see that this quarter, not only are earnings beating expectations but top line sales figures are also now starting to experience growth. As Market Watch reports, in addition to the 79% of companies that have reported earnings that beat expectations, 66% have also beaten revenue estimates. This should bode well for equity investors. To this end, Jerry Webman, Chief Economist of Oppenheimer Funds, reminds those worried about P/E ratios that they should, “Keep an eye not just on the numerator (price), but on the denominator, as well. P/E ratios don’t have to keep climbing for equity market gains to continue. As long as earnings grow, prices can rise even if valuations don’t. And so far, earnings appear to be doing just that.”
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