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The Trump Rally Is Overshadowing The Best Earnings Season In Years

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The Trump Rally Is Overshadowing The Best Earnings Season In Years

The "Trump rally" pushed the Dow Jones Industrial Average over the 20,000 milestone. With all the attention focused on President Donald Trump, his administration and the many hotly debated political issues, the fact that this quarter's earnings season is the best in years is flying under the radar.

According to a Bloomberg report, the quarter will result in the end to an "earnings recession" among the S&P 500 companies. In fact, while net income among the largest companies is higher by more than 4 percent, sales are rising at the fastest pace seen since 2012.

Earnings guidance is also encouraging, as the number of companies that raised their outlook versus those that lowered their outlook hasn't been this favorable since 2011.

Despite the encouraging data, investors aren't pulling the trigger. Bloomberg noted that companies whose results exceeded analyst expectations gained less than 1 percent in the subsequent trading session.

Expert Weighs In

Dan Suzuki, a senior equity strategist at Merrill Lynch told Bloomberg that investors are likely focused on new policies from the Trump administration and other macro factors rather than how companies performed in the final quarter of 2016.

However, the fact that stocks aren't moving higher is actually an encouraging sign for longer-term investors. The higher earnings is actually lowering valuations of stocks which makes it more attractive.

The forward 12-month price to earnings ratio for the S&P 500 index is now at just 17.6x, down from an average of 18.4x over the final three months of 2016 when the stock rally was in full force.

Image Credit: By Jamelle Bouie (Flickr) [Wikimedia Commons

 

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