THE WEEK AHEAD

Producer, Consumer, Import, and Export prices are in focus this week as we recap third-quarter earnings and look down the road towards future earnings seasons.

MACROECONOMIC INSIGHT

According to FactSet, for the third quarter, companies have reported earnings growth of 5.9% and sales growth of 5.8%. In addition to these impressive gains, more companies are beating earnings per share and revenue estimates than average. For example:

Of the companies that have reported, 74% have reported EPS above the mean EPS estimate. That 74% figure is above both the 1-year (71%) and 5-year average (69%). At the sector level, Technology (90%) has the highest percentage of EPS beats, while Utilities (50%) and Telecom (50%) have the lowest.

Of the companies that have reported, 66% have reported revenue above the mean revenue estimate. That 66% figure is above both the 1-year (61%) and 5-year average (55%). At the sector level, Technology (81%) has the highest percentage of revenue beats, while Utilities (21%) has the lowest.

With regard to valuation, the forward 12-month P/E ratio is 18.0. This figure is above both the 5-year (15.7) and 10-year average (14.1). Since the start of the fourth quarter, the price of the S&P 500 index has increased by 2.4%, while the forward 12-month estimate has increased 1.1%.

See graph below.

Source: FactSet

 

Looking into the future, the prospects for growth look promising. The street currently expects earnings to jump to double-digit levels well into next year:

4Q2017: earnings growth of 10.4%, revenue growth of 6.2%

CY2017: earnings growth of 9.5%, revenue growth of 6.1%

1Q2018: earnings growth of 10.6%, revenue growth of 6.4%

2Q2018: earnings growth of 10.2%, revenue growth of 6.3%

CY2018: earnings growth of 11.0%, revenue growth of 5.2%

If past is prologue we would expect next year’s forecasts to come down as actual results come in.

 

ECONOMIC DATA THIS WEEK

Date Report Period Survey Prior
Monday, Nov 13: No Economic Data
Tuesday, Nov 14: PPI Final Demand M/M Oct 0.1% 0.4%
PPI Ex Food and Energy M/M Oct 0.2% 0.4%
PPI Ex Food, Energy, Trade M/M Oct — 0.2%
PPI Final Demand Y/Y Oct 2.5% 2.6%
PPI Ex Food and Energy Y/Y Oct 2.2% 2.2%
PPI Ex Food, Energy. Trade Y/Y Oct — 2.1%
Wednesday, Nov 15: CPI M/M Oct 0.1% 0.5%
CPI Ex Food and Energy M/M Oct 0.2% 0.1%
CPI Y/Y Oct 2.0% 2.2%
CPI Ex Food and Energy Y/Y Oct 1.7% 1.7%
Retail Sales Advance M/M Oct 0.1% 1.6%
Retail Sales Ex Auto M/M Oct 0.2% 1.0%
Retail Sales Ex Auto and Gas Oct 0.3% 0.5%
Empire State Manufacturing Survey Nov 25.8 30.2
Business Inventories Sep 0.0% 0.7%
Thursday, Nov 16: Weekly Jobless Claims Nov 11 — 239K
Philadelphia Fed Business Outlook Nov 24.0 27.9
Industrial Production M/M Oct 0.5% 0.3%
Capacity Utilization Oct 76.3% 76.0%
Import Price Index M/M Oct 0.3% 0.7%
Import Price Index Y/Y Oct — 2.7%
Export Price Index M/M Oct 0.4% 0.8%
Export Price Index Y/Y Oct — 2.9%
NAHB Housing Market Index Nov 68 68
Friday, Nov 17: Housing Starts M/M Oct 4.7% -4.7%
Building Permits M/M Oct 1.1% -4.5%
Source: Bloomberg

ASSET ALLOCATION PORTFOLIO POSTURE

Based on shorter-term expectations, the “tactical” allocation within portfolios is overweight stocks versus bonds.

 

 

Client approved reports and commentaries click here

Kevin Caron, CFA, Senior Portfolio Manager

Chad Morganlander, Senior Portfolio Manager

Matthew Battipaglia, Portfolio Manager

Suzanne Ashley, Analyst

(973) 549-4052 www.washingtoncrossingadvisors.com www.stifel.com

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