Nov 10, 2014 | Post by: Roman Chuyan, CFA Comments Off on Q3 Earnings Growth is Strong at 7.9%

Q3 Earnings Growth is Strong at 7.9%

The S&P 500 Q3 earnings are growing at 7.9% YoY, according to Factset. Growth is much better than analysts’ estimates of 4.6% on Sep 30; and above-average 77% of companies beat estimates. Revenue growth is also strong, 4% YoY.

SP500 earnings - tactical investment management

Some tactical investment managers are concerned that equities are overvalued – the trailing 12-month P/E ratio for the S&P 500 is 18.7, above its historical average. At Model Capital, we consider valuation as part of our forward-looking, fundamental-based tactical investment management approach – and we agree that equity valuation is elevated. However, it is important to take into account recent earnings trends:

  1. Earnings growth stayed above 7.7% in three of the last four quarters. Along with faster top-line growth, this indicates a start of a period of faster growth – and may indicate an end of the “new normal.”
  2. Valuation is not the only factor that affects near-term market returns – in fact, economic factors are very strong in our tactical management models, more than offsetting the negative effect of valuation factors.

Model Capital Management LLC is a tactical investment manager. Please review the following pages for more information on Model Capital’s approach to tactical management and our tactical asset allocation models/strategies.


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