Received this interesting investing letter from Mitch Zacks at
Zacks Investment Management
Attn: Wealth Management Group
One South Wacker Drive, Suite 2700
Chicago, IL 60606
Here’s an excerpt. (They told me I could quote him if I gave credit and didn’t do it all the time).
As of this writing, 399 of the S&P 500 companies have reported and total earnings in aggregate are down -2.3% from the same period last year on -4.2% lower revenues - not the picture we want to see…
I don’t think there’s a need to get too worried and, in fact, I think there are three compelling reasons to remain optimistic…
1) An Investor’s Three Favorite Words: “Better than Expected” - of the 399 companies that have reported, 69% of them beat their earnings per share estimates and 50% of them have reported higher than expected top-line revenues. The stock market loves positive surprises…
2) Strip Away “Energy,” and Earnings Are Positive - If a sector is as notable a drag on aggregate S&P 500 earnings as Energy, for analysis purposes it makes sense to strip it away to see how the other sectors are truly performing. And, when you do that, you discover things aren’t as bad as they may seem: total earnings for the Energy sector in the S&P 500 index are down 60% from the same period last year on 30% lower revenues. So, when you take the Energy sector out of the equation, total earnings for the rest of the S&P 500 are up 5% on a 2% increase in revenues. That’s reasonable growth…
3) Consumer-Related Sectors Are Strong - consumer spending represents about two-thirds of the U.S. economy and it rose +0.2% in June after a +0.7% uptick in May. This growth shows up in the Consumer Discretionary, Retail/Wholesale, and Autos sectors; three of the best performing sectors in Q2 demonstrating consumer spending strength.
The auto industry is on pace for its best year in a decade and the Consumer Discretionary and Retail/Wholesale sectors saw some of the most robust year-over-year revenue growth in Q2. This, I think, should give investors some reassurance about the real state of the economy.
I like that common sense approach.