Q3 Earnings

According to FactSet, which is the service that readers know I rely on for all things earnings-related, third quarter results have continued to improve from where they were. Currently, for the third quarter, with 91% of the S&P 500 having reported, earnings are showing blended (results & expectations) year over year growth rate of 5.3% up from 5.1% a week ago and 3.6% the week prior. Revenue growth is currently running at a blended growth rate of 5.5%, up from 5.2% last week.

Results and expectations for the third quarter are no longer negatively impacting the consensus view for both the fourth quarter and for the full year as they had been a few weeks ago. Q4 earnings growth is now seen at 12.2%, down from 12.7% last week while full year earnings growth is now seen at 9.4%, up from 9.3%, where it had been for a couple of weeks in a row.

For the third quarter, double-digit earnings growth is now only expected from the Communication Services (+23%), and Health Care (+13.9%) sectors. Expectations for Tech sector earnings growth have dropped all the way from +15.6% to just +6.9%. The Materials, Industrials and Energy (-25.5%) sectors are all still expected to post year over year earnings contraction.

The S&P 500 goes into this week trading at an almost stunning 22.2 times forward looking earnings, up from 21.3 just a week ago...which is well above the five- and ten-year averages for the index of 19.6 and 18.1 times, respectively. This is now the highest forward-looking valuation placed upon the S&P 500 in more than three years. According to FactSet, the 25-year high for S&P 500 forward looking valuation by PE was 24.4 times in May 2000, so we're not quite there yet. The S&P 500 also trades at 27.9 times trailing twelve months' earnings, down from 26.7 times a week ago...which is also well above the five- and ten-year averages of 23.9 times and 21.8 times.