With markets on edge over North Korea, it is worth looking at Q2 2017 earnings and taking a look at what is in store for Q3 2017, aside from the rising tensions in the Korean peninsula. While most sectors reported solid Q2 17 earnings and sales, few sectors exceeded expectations.
Technology – Stellar results from the FAANG group (Google, Apple, Netflix, Amazon and Facebook) pushed earnings growth for the tech sector above 17%, with sales growth running above 10%. Technology remains the largest sector in the S&P 500, making up 22.2% of the entire index.
Financials and healthcare – Aside from technology, the other sectors to watch include financials, which makes up 14.5% of the S&P index, and healthcare, which makes up 14.3% of the S&P index. Majority of financial firms beat expectations for both sales and earnings while healthcare firms had more moderate progress, but still reported positive growth.
The laggards in the S&P 500 included oil and gas, which failed to beat expectations on earnings, consumer goods and telecommunications failed to report positive sales growth, while consumer services and utilities failed to report positive earnings growth. But, these sectors make up a small section of the S&P 500, and as such, don’t have a significant bearing on the overall index.
Future Wealth’s View
With markets chugging along hitting at all time highs, before two leaders with two bad haircuts threw the markets into a tailspin late in the week, strong Q2 17 earnings gives us confidence that fundamentals still remain solid. While US consumers appear cautious and big brands struggle, the weaker dollar has boosted profits across the board. Since President Trump’s inauguration, the dollar has lost about 9 per cent of its value against the euro and 4 per cent against the yen, boosting the value of foreign earnings for US companies.
The big wild card in Q3 2017 is the expectations of corporate tax reform. After the failure of attempts in Congress to repeal Obamacare, tax reform has moved to the top of the political agenda. Unlike the healthcare law, tax reform will have massive impact on corporate earnings. Companies like Apple have large piles of cash held overseas to defer tax, and tax reform, if done right, could present opportunity to repatriate cash back to the US for future investments.
With Trump’s popularity at an all time low and he is not the one to take kindly to low ratings, one hopes that he will revert to slamming Rosie O’Donnell once again and refrain from cornering the ruthless and paranoid Kim Jong Un.