I can’t say it enough – economic fundamentals are what really matter. Earnings and revenue are the levers that drive the economy.
Almost all third quarter earnings have been reported, so it’s time to look to estimates and expectations for 2020.
In our opinion, for the market to continue trending higher, corporate earnings need to grow. The best way to make that happen is to increase revenues, which could very well happen.
As indicated in the below table, Bloomberg’s consensus year-over-year earnings estimate for the S&P 500 in 2020 is 10 percent.
That’s quite a jump over the 2019 estimate of 2.5 percent, and it shows an expectation for an economic reacceleration. If more trade deals get done, expect these estimates to jump even more.
Some other signs of reacceleration include:
- Five of 11 major sectors expecting double-digit growth rates (only 1 in 2019)
- A jump in year-over-year revenue growth, from 3.9 percent to 5 percent
- Six of 11 major sectors expecting revenue growth of 5 percent or more in 2020
Another good comparison is the year-over-year growth rate estimates for the S&P 500. In Q3 2019, they were negative. They’re looking much more favorable in 2020:
Of course, these all assume no major hinderances to trade. But if these estimates hold true, there will be additional growth after a great 2019 thus far (most of which was recovery from a crazy fourth quarter of 2018).
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