Earnings reports are front and center this week, with more than 800 companies coming out with quarterly results, including 183 S&P 500 members. With results from 97 S&P 500 members already out, as of Friday, July 21st, we will have crossed the halfway mark by the end of this week. The results thus far provide a positive and reassuring view of corporate earnings, which will most likely get strengthened and reconfirmed through the remainder of this reporting cycle.

Here are some of the positives that we can glean either from the results that have come out already or can reasonably be expected to transpire in the coming days.

First, an abundance of positive surprises. We typically don’t give this factor a lot of weight in evaluating or assessing an earnings season since we all know that management teams are experts in managing expectations. Even then, the trend emerging in the Q2 earnings season is noteworthy for two reasons. First, estimates for the quarter had not fallen by as much as had historically been the case. Second, the proportion of positive revenue surprises, a much harder variable to manipulate relative to earnings, is really off the chart.

The chart below shows the proportion of 97 S&P 500 members that have beaten both EPS and revenue estimates and how that compares to historical periods.

Second, the earnings and revenue growth pace is steadily going up relative to pre-season expectations. Total Q2 earnings for the index are currently expected to be up +8.6% from the same period last year +4.7% higher revenues.

Please note that the +8.6% growth rate is the blended growth rate; it combines the actual growth for the 97 S&P 500 members that have reported with estimates for the still-to-come 403 index members. At the start of the quarter, the expectation was for earnings growth of +7.9%, which came down as the quarter unfolded, reaching as low as +5.6% just ahead of the start of the reporting season. Since plenty of results are still to come, the actual Q2 earnings growth could very well go above +10%, which will follow the +13.3% earnings growth in the preceding quarter.

The Q2 earnings growth may be on track to come below the prior-quarter’s level, but the quarter’s dollar tally of earnings is on track to reach a new all-time quarterly record, surpassing the 2016 Q4 level, as you can see in the chart below. The chart below contrasts the estimated 2017 Q2 total of $290.7 billion with the actual earnings for the preceding four quarters and estimates for the following four periods.

Third, Q2 growth is broad-based and not dependent on one or two sectors. There is strong growth contribution from the Finance, Technology and Energy sectors in Q2, but we have 11 of the 16 Zacks sectors on track to produce more earnings than the year-earlier period.

Fourth, estimates for the September quarter have started coming down, but the pace and magnitude of negative revisions compares favorably to other comparable periods. Total Q3 earnings are currently expected to be up +5.4% from the same period last year, down from +6.3% at the start of July. This is a reassuring start on the revisions front, but we will have to see if this trend will remain in place through the rest of this earnings season.

Here are this week’s key earnings reports

Monday (7/24): Halliburton (HAL - Free Report) is notable among the 6 S&P 500 members coming out with results before the market’s open, while Google’s parent Alphabet (GOOGL - Free Report) is one of three index members reporting after the close.

Tuesday (7/25): On a very busy reporting docket with 37 S&P 500 members reporting results (22 before the market’s open), the notable reports are from McDonald’s (MCD - Free Report) , Caterpillar (CAT), DuPont (DD), 3M (MMM - Free Report) and GM (GM - Free Report) .

Wednesday (7/26): We have 51 S&P 500 members reporting results today, of which 27 are coming out before in the morning. Boeing (BA), Coke (KO - Free Report) and Ford (F - Free Report) are the notable among the morning reporters. Facebook (FB - Free Report) is the most prominent report after the market’s close.

Thursday (7/27): On a busy reporting day with 69 S&P 500 members reporting results (39 in the morning), the notable ones are from Amazon (AMZN), Starbucks (SBUX - Free Report) , Intel (INTC - Free Report) and Twitter (TWTR - Free Report) .

Friday (4/29): Exxon (XOM - Free Report) and Chevron (CVX) are the notable among the 17 index members reporting today, all in the morning.

Q2 Earnings Season Scorecard (as of Friday, July 21, 2017)
 
We now have Q2 results from 97 S&P 500 members that combined account for 28.1% of the index’s total market capitalization. Total earnings for these companies are up +8.4% from the same period last year on +5.1% higher revenues, with 78.4% beating EPS estimates and 72.2% beating revenue estimates.

The charts below compare the Q2 results thus far from the 97 index members with what we had seen from the same group of companies in other recent periods.

As pointed out earlier, the proportion of companies beating EPS and revenue estimates is tracking notably above historical periods (right-hand chart). The earnings and revenue growth pace for these 97 companies is below what we had seen from the same sample of companies in Q1, but an improvement over other recent periods.

Strong year over year growth in the Finance sector in Q1 is a big reason for the less than flattering comparison for growth. The growth comparison becomes a lot more favorable once looked at on an ex-Finance basis, as the right-hand chart below shows.

For the Finance sector, we now have Q2 results from 53.3% of the sector’s total market cap in the S&P 500 index. Total earnings for these Finance sector companies are up +7.2% from the same period last year on +5.4% higher revenues, with 81.8% beating EPS estimates and 66.7% beating top-line estimates.

The chart below compares the growth pace (earnings and revenue) and proportion of positive surprises for these Finance sector companies with what we saw from this same group of companies in other recent periods.

What this shows is that the Q2 earnings and revenue growth pace is below what we saw from the same 33 members in the preceding quarter, but is otherwise better than other recent historical periods. (Q2 earnings lower than 4 quarter avg)

Total Q2 earnings for the sector as a whole, combining the reported actual results with the still-to-come estimates, are expected to be up +12.6% from the same period last year on +2.6% higher revenues. The chart below shows the sector’s Q2 earnings growth expectations contrasted with estimates for the following four quarters and actual results for the preceding two periods.

Please note that the sector’s earnings growth expectation has gone up following the better than expected big bank results. It is very likely that the overall growth pace for the sector outpaces the strong showing we saw from the sector in the preceding period.

The table below shows the sector’s Q2 earnings growth expectations at the medium-industry level contrasted with estimates for the following four quarters and actual results for the preceding three periods.

Please note that the Major Banks industry, of which JPMorgan, Wells Fargo and others are part, accounts for roughly 45% of the sector’s total earnings (insurance is the second biggest earnings contributor, accounting for about 25% of the total).

Q2 Expectations

Total Q2 earnings are expected to be up +8.6% from the same period last year on +4.7% higher revenues. This would follow +13.3% earnings growth in 2017 Q1 on +7.0% revenues growth, the highest growth pace in all most two years.

The table below shows the summary picture for Q2, contrasted with what was actually achieved in Q1.

The chart below shoes Q2 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, this growth pace is expected to continue through the rest of the year.