With the fourth quarter 2016 U.S. earnings season coming to a close and around 90%1 of companies having reported, we look at the results and notable commentary:

After five quarters of negative earnings growth and one sub-par quarter, it appears US earnings have turned a corner – Bloomberg data shows that the S&P 500 (an index made up of the 500 largest U.S.-listed companies) earnings are up just over 5%1 and revenues are rising at the second fastest rate since 20122. In addition, an above average number of companies (73% vs. a 5-year average of 67%3) have beaten the market’s expectations for earnings.

CEO commentary is also painting a rosy picture, with 51% of companies using the word “optimistic”, the highest ever in Bank of America Merrill Lynch’s recorded history which dates back to 20034.

Many of the Milford Global Fund’s direct holdings are expecting a robust 2017.  In particular, the U.S construction market outlook appears as strong as ever, with Howard Nye, CEO of aggregates producer Martin Marietta  remarking “as we look forward to 2017 and beyond, our overall outlook is the strongest we have ever seen”5. This was corroborated by Thomas Hill, CEO of close peer Vulcan Materials, who said “we’re looking forward to a strong year in 2017 and looking past 2017. Our foundation for sustained growth is as strong as I’ve ever seen it in my 27 years with the company”5.

Jamie Dimon, CEO of JP Morgan Chase & Co and one of the most respected CEOs on Wall Street given his successful navigation through the Global Financial Crisis, commented on a number of macroeconomic indicators, saying that “if you look across the broad spectrum, capital expenditures, business confidence, consumer confidence, household building, household formation, wage income, unemployment, auto sales, retail sales, it looks like it’s getting stronger, not weaker”5.

This optimism is rounded off with consumers and small businesses more bullish on the prospects for economic growth than any time since 20046 as well as 23% of investors now predicting a “boom” vs. just 1% one year ago (according to Bank of America Merrill Lynch’s Global Fund Manager Survey7).

In summary, the widespread positivity bodes well for corporate earnings and subsequently, Milford’s global holdings.

However, there is still a significant amount of uncertainty around Government policies such as tax reform including border-adjusted tax, deregulation, infrastructure spend, free trade and tariffs. Although, as shown below, this uncertainty didn’t prevent the second largest post-election rally in the last 30 years on a one and two month basis.

Source: Bloomberg.

Having rallied on the post-election “sizzle”, the market may now just be waiting for the policy “sausage”.

Stephanie Perrin


Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.

[1] Bloomberg as at 23rd February 2017.

[2] Bloomberg “Trump Rally Drained Drama From Best Earnings Season in Six Years”.

[3] FactSet Earnings Insight – 5-year average as at 24th February 2017.

[4] Bank of America Merrill Lynch Earnings Season Update – Week 5.

[5] 4Q16 earnings transcripts.

[6] Bloomberg “Traders Tune Out Washington Tempests as Global Equities Party On”.

[7] Bank of America Merrill Lynch Global Fund Manager Survey – February 2017.