Shine on the bottom line

28 July 2017 By Tom Buerkle Follow @tombuerkle

Notwithstanding Washington’s spectacular dysfunction, corporations are beating profit forecasts, growing at a double-digit pace for another quarter. Corporate America’s ability to fatten the bottom line without a spurt in the broader economy justifies bull-market convictions.

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As of July 28, companies in the S&P 500 Index have reported second-quarter earnings that are 12.4 percent above the level of a year earlier on average, according to Thomson Reuters I/B/E/S.

Prior to the reporting season, analysts were predicting profit growth of 8 percent. Some 73 percent of companies have exceeded analysts’ earnings forecasts, while 9 percent have met expectations and just 18 percent have fallen short.

Reported revenue has grown by an average of 5.7 percent, compared with analysts’ expectations of 4.6 percent.

The U.S. economy expanded at an annual rate of 2.6 percent in the second quarter, the Commerce Department’s Bureau of Economic Analysis reported on July 28. The increase was driven by consumer spending, which rose at a 2.8 percent rate, and business equipment spending, which increased at an 8.2 percent pace. Residential investment and state and local government spending declined in the period.

The GDP growth rate in the first quarter was revised down to 1.2 percent, a decrease of two-tenths of a percentage point. For the first half of the year, the economy expanded at a 1.9 percent pace.

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