Earnings Season is akin to bringing home the report card for the parents to see; I get to be on the fun side of this activity now as a parent and am happy to report all my kids earned a trip to their favorite local Hibachi restaurant. It’s a chance for us as investors to get a detailed quarterly look into how the companies we choose to invest in have performed, looking backward and hearing commentary on how they think they’ll perform looking forward. In my opinion, any investing in the stock market that doesn’t include reviewing these report cards is not actually investing – it’s just guessing.
Well, the “report cards” are in for the first quarter of 2024 and corporate earnings were solid. I want to reiterate that this type of data drives our investment decision-making, stock picking, and overall advice. We aim to be informed on interest rates and the Federal Reserve, policy changes, inflation, macro-economics and so forth, BUT we always want to keep our eye on the actual businesses. That’s what investing in the stock market is after all…buying an interest in a business. Well, business this year has been good, and companies are making money. As you can see below 62% of the S&P 500 companies produced more revenue than they estimated last quarter and 80% turned that extra revenue into more “earnings” (aka “profit”) than they estimated. Beyond that, the 500 largest publicly traded US companies in the S&P 500 estimate higher forward-looking earnings over the next 12 months – an increase in growth. Many reasons for their optimism include AI benefits in productivity, better cost control leading to increased profit margins, and a stable economic outlook.
Earnings Dashboard as of May 24, 2024
What I don’t often see as I’m perusing corporate earnings reports or hear as I listen to earnings calls is much talk on politics – this is an election year after all. This is NORMAL for corporations. I tell clients all the time “we as individuals care a lot more about who’s in office than the economy or corporate earnings do.” Well-run companies in a Capitalist Economy will find a way, and our job is to simply decide where to allocate capital and decipher which well-run businesses can be purchased for our clients at a reasonable price.
I’ll conclude with this and don’t feel any color commentary from me is needed…
Cheers.
