The S&P 500 is expected to reveal positive earnings growth for the fourth quarter, supporting further strength in U.S. stocks and related exchange traded funds.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), have already climbed 22.9% over the past year, but further earnings growth could help sustain the momentum.
The S&P 500 is expected to reveal earnings growth of at least 3.2% for the fourth quarter, writes John Butters, Senior Earnings Analyst at FactSet.
“Based on the average change in earnings growth due to companies reporting actual earnings above estimated earnings, it is likely the index will report earnings growth of more than 3.2% for the fourth quarter,” Butters said.
In periods when S&P 500 companies reveal actual earnings above estimates during an earnings season, the overall earnings growth rate for the benchmark rises due to the higher actual earnings-per-share numbers replacing the lower estimates. We may witness a similar phenomenon this season as more companies surprised on the upside.
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Consequently, if we tack on this typical 3.1 percentage point increase onto Q4 estimated earnings growth, we may witness S&P 500 companies reporting growth of over 6.0% for this earning season, which would further solidify the ongoing bull market rally.
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