Wall Street earnings strength enliven investors, industrials a surprise

Thu May 4, 2017 10:40am EDT
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By Caroline Valetkevitch and Megan Davies

NEW YORK (Reuters) - U.S. companies are reporting their strongest profit and sales growth in more than five years this earnings season, with more beating expectations and particular strength in the industrial sector.

The results strengthen arguments from some investors that the lofty valuations U.S. equities are commanding are justified, and provide optimism that the eight-year bull run in stocks will keep rolling along. The S&P 500 is trading at about 17.7 times projected earnings, well above its long-term average of 15.

Earnings were expected to be good especially in energy, which has rebounded sharply on higher oil prices from a year ago. Still, results are markedly better than expected.

"The bears will say the comparisons were easy," said Bob Doll, chief equity strategist at Nuveen Asset Management in Princeton, New Jersey. "All of that is accurate, but the truth is a wide swath of companies is beating expectations."

With results in from about 70 percent of the S&P 500 companies, projected earnings growth for the first quarter is now at 14.2 percent while sales are forecast up 7.2 percent, on track to be the best since 2011, Thomson Reuters data showed.

The reports have pushed the estimated projected earnings growth for the quarter from 10.2 percent at the start of April.

Expectations for the full year have risen as well. Analysts typically are still taking down full-year numbers at this time, said Jill Carey Hall, equity and quant strategist at Bank of America-Merrill Lynch. The bank's data shows it is the first time they are rising during first-quarter reports since 2012.

So far, 75 percent have beaten analysts' profit expectations for the quarter, compared to the 71 percent average of recent quarters and the long-term average of 64 percent.   Continued...

Traders work on the floor of the New York Stock Exchange in the Manhattan borough of New York, U.S. May 4, 2017. REUTERS/Brendan McDermid