In 2017 the S&P 500 was on a roll. For the first time in its history it produced positive total returns every month. Not surprisingly that momentum was largely reflected in the earnings of its constituent companies.
With the vast majority of Q4 results in, over three-quarters of company Q4 earnings exceeded analysts’ expectations. The overall figure of 76% was above the 72% average for the past four quarters and well above the long-term average of 64%.
All but one of the 11 sectors in the index are expected to see an improvement in earnings in Q4 2017 relative to Q4 2016, with energy, materials and tech accounting for much of the growth between them. Real estate fared the worst and was the only sector to see a drop in earnings.
Oil companies on top
According to Thomson Reuters, the energy sector is expected to earn $11.6bn in Q4 2017 compared with $5.2bn in Q4 2016. While all six sub-industries in the sector are expected to see higher earnings than a year ago, oil and gas exploration and production and oil and gas equipment and services performed the best. These industries benefited from a higher oil price and comparison to weak figures from the previous year.
In the materials sector all four industries posted earnings growth. According to FactSet copper was one of the stars with earnings growth year-on-year of more than 100%. Copper was in short supply globally from the middle of 2017.
The tech sector was the third best for year-on-year earnings growth. Like energy and materials it is also one of the sectors with the highest international revenue exposures of all eleven sectors in the index.
Real estate was the one sector where earnings fell year on year, from $7.7bn in Q4 2016 to $7.4bn last year. While six of the eight sub-industries are expected to see earnings rise, two areas, office and healthcare real estate investment trusts (REITs), saw falls in earnings compared with Q4 2016, with rising interest rates impacting their returns.
Overall, fourth quarter earnings are expected to increase 14.8% from Q4 2016. If the energy sector is taken out of the equation that figure falls to 12.6%.
Companies also beat revenue predictions on a grand scale, with 76.9% of companies reporting Q4 2017 revenue above expectations. This is above the long-term average of 60% and well above the average over the past four quarters of 63%.
The average increase in revenue in Q4 was 8.2% - the highest growth since Q4 2011.
The best of times; the worst of times
Of course, the S&P 500’s constituent companies had varying fortunes in 2017. The shares that did best in 2017 were: