The S&P 500 is quietly pulling off a winning streak that even some bulls didn't see coming. For the second quarter in a row, the index has notched double-digit earnings growth – clocking in at 13.4% for the first quarter – leaving ETF investors in the SPDR S&P 500 ETF (NYSE:SPY), iShares Core S&P 500 ETF (NYSE:IVV) and Vanguard S&P 500 ETF (NYSE:VOO) with something to cheer about.
According to FactSet, 90% of S&P 500 companies have reported results so far, and 78% of them beat earnings estimates – not only topping the 10-year average (75%) but also surpassing the five-year norm (77%). While the average earnings surprise of 8.5% came in just below the 5-year average (8.8%), it’s well ahead of the 10-year benchmark (6.9%).
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This uptick didn't happen overnight. Since the end of the first quarter, earnings growth estimates have steadily climbed – from 7.1% on March 31 to 12.8% last week, now landing at a strong 13.4%. Much of the fuel came from surprise profits in Communication Services, Financials, and Health Care.
Eight out of eleven sectors are showing year-over-year earnings growth, with Health Care, Communications Services, Info Tech and Utilities leading the pack. Even more impressively, this is now the seventh straight quarter of earnings growth for the S&P 500.
The revenue side of the story is more muted – 62% of companies beat top-line expectations (below the 5-year average of 69%), with aggregate revenue surprises averaging just 0.7%. But that still translates to a 4.8% revenue growth rate – the 18th consecutive quarter of sales growth.
Looking ahead, analysts are expecting earnings growth to cool slightly, with forecasts of 5.2%, 7.4%, and 6.7% for the second through fourth quarter. But with a forward P/E of 20.5 (above the 5- and 10-year averages), markets are already pricing in strength – or at least resilience.
For ETF investors watching SPY, IVV, or VOO, the S&P 500 just sent a second bullish signal in a row: earnings are holding up – and then some.
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