Blowout Q1 earnings for S&P 500 points to gains beyond tax cut

S&P 500 stocks may not have much to show for 2018, sporting a lowly 1.7% year-to-date gain. But 1Q earnings indicate a strong foundation for future growth that goes beyond the benefits of the U.S. tax overhaul.

With over 90% of S&P 500 companies reporting, the index is on pace for y/y 1Q EPS growth of 23.5%, well above expectations and the best performance since 4Q10, according to Bloomberg Intelligence equity strategists Gina Martin Adams and Peter Chung.

Tech and energy lead, with 91% and 84% of companies surpassing analyst expectations. Seven of 11 sectors have at least 75% of constituents beating bottom-line forecasts, with defensive sectors (telecom, utilities) the notable laggards. It's not just the FAAMG gang (Facebook, Apple, Amazon.com, Microsoft and Alphabet's Google) either; the rest of the S&P 500 is still on pace for a stunning 23.5% EPS gain.

Better-than-expected top-line gains were perhaps the best news to come out of 1Q earnings reports. The 6.2% y/y increase in sales is well above the 2011-'17 average of 3.8%. More than 55% of companies have posted better-than-expected revenue, and just 12% missed estimates. Technology is the most prominent outperformer, but industrials, utilities, health care and materials also beat forecasts at least 60% of the time.

Source: Bloomberg Pro Terminal

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