Earnings Growth

What drives the stock price of an established company higher or lower over the longterm. Lots and lots of studies have been done on this one simple question. And the studies all come back to the same basic answer, the earnings of a company are the main reason a stock price goes up or down. Simply put, when a company makes higher and higher profits, the value of that business rises, and ultimately the stock price rises as well. Stocks have been surging, and many of you are wondering, is this stock market rally for real? Is it based on fundamentals like corporate earnings or is it smoke and mirrors? Let's take a quick look at some fundamentals, courtesy of Bloomberg and FactSet research. This chart shows a big surge in companies reporting that their revenues are surprising to the upside. Eighty-one percent of S&P companies are reporting sales above their estimates.

Wow. This is the highest percentage of positive sales surprises since before 2008. Revenues are up, how about their profits? The average S&P company has seen their earnings grow by a net 12% year over year. This is a very healthy rise, a rise we haven't seen in 10 years. Remember the stock market can always be affected by unpredictable events, especially in the short term. It's important to not be committed above your risk tolerance, but the fundamentals show an improving profit picture for S&P companies and some solid reasons for this rally.

If you have any questions or comments, please feel free to let us know. See you soon.

You May Also Like:

• Repatriation Billions of Cash Back To USA!!
• Recent Volatility
• 4th Quarter 2019 Update
• Meeting your needs at every life stage
• The FAANG Stocks