The S&P 500 and index-related exchange traded funds have been making new highs as U.S. companies are on track to report year-over-year growth in revenues for the first time since 2014.
Year-to-date, the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO) gained 7.6% as the S&P 500 Index hit a new intra-day high.
Fueling the renewed market rally, U.S. companies are reporting increased revenue growth. For the week ended July 25, the blended revenue growth rate for the S&P 500 rose to 0.1%, above the year-over-year decline of -0.3%at the end of the previous week and the year-over-year fall of -0.8% at the end of the second quarter, writes John Butters, Senior Earnings Analyst, for FactSet.
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The index is also set to report growth in revenues for the quarter, potentially marking the first time the S&P 500 will see see year-over-year growth in sales since the fourth quarter of 2014.
“Two factors typically drive the improvement in the revenue growth rate during an average earnings season: the number (or percentage) of companies that report revenues above estimates and the aggregate amount by which companies report revenues above (or below) estimates,” Butters said.
[related_stories]So far, 57% of companies that reported revenues above estimates was slightly above the five-year average of 55%. Additionally, the aggregate reported revenue estimates for Q2 at 1.2% is twice as large as the five-year average of 0.6%.
“So, while both numbers are above average, the surprise percentage for Q2 is the main driver of the increase in the Q2 revenue growth rate since June 30,” Butters said.
On a sector-by-sector basis, six sectors are reporting revenues above estimates by 1.2% or more for the second quarter, with the energy sector in the lead. Of the six, five sectors revealed an increase in revenue growth of 1 percentage point or more.
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The energy sector has surprised markets, reporting the largest aggregate percentage to date for revenues at 2.9% and the largest percentage point improvement in revenue growth since June 30 at 4.0 percentage points.
The Energy Select Sector SPDR (NYSEArca: XLE) rose 13.2% year-to-date, tracking the second best performing area of the market.
On the other hand, the utilities sector, which has been the best performing area of the market this year, registered the worst change in sales growth rate this earnings period. Utilities saw revenue growth to date since June 30 fall 3.4 percentage points.
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SPDR S&P 500 ETF