Fourth quarter earnings reports have started coming in and more companies are beating expectations than not. Close to 12% of S&P 500 companies have announced so far. Of the companies that have announced, 67% reported earnings above consensus, 9% in-line  with consensus and 24% below consensus. Revenue for 69% of the companies reporting was above expectations with the remaining 31% below. This shows positive surprises of 4.2% and 1.2% for earnings and sales. So far, growth in earnings is positive at 0.7%, however the expectation in the coming weeks is for weaker numbers. The current expectation for fourth quarter earnings growth is to be negative. Of course, we hope this is not the case and positive surprises continue. On the other hand, sales growth is expected to be positive. The Utilities and Financials sectors have led the growth in earnings for the quarter. Energy, Materials and Consumer Discretionary have detracted from fourth quarter growth. The S&P 500 index is up 0.15% for the week and 2.82% year-to-date.

As mentioned above, there has been some weakness in the Consumer Discretionary sector. This is despite better than expected December retail sales numbers. Retail sales grew by 0.3% in December from the prior month, which is in-line with expectations and the previous month’s growth. This was also the third month of growth in retail sales. Yet, this number was dragged down by auto sales. Sales growth goes up to 0.70% if you exclude autos, which detracted by 1.3%.

In 2019, retail sales grew by 3.6% over 2018. This growth was led by strong numbers from e-commerce retailing of 13.1%, restaurants and bars at 4.4% growth and despite December’s weakness, growth in autos of 4%. Purchases of electronic appliances declined by 3.5%. Making this the worst growth seen across the categories.

We closed 2019 with strength in housing. Construction started on 1.608 million homes in the month. Meaningfully better than the expected 1.379 million and the prior month’s 1.375 million. Existing home sales also saw a jump with 5.540 million existing homes being sold in December. The expectation was for sales of 5.435 million units.

November Business Inventory numbers were not positive. Business Inventories dropped 0.20% in the month, which is a larger decline than the expected decline of 0.10%. The decline was led by drops in retail inventories and motor vehicle inventories.

Contributed by | Kuuku Saah, CFA, Managing Director

Kuuku is a Managing Director at BTC Capital Management with nine years of investment management experience. Kuuku’s primary responsibilities include portfolio management and analysis. Kuuku attended Drake University and double-majored in finance and economics. He is a holder of the right to use the Chartered Financial Analyst® designation.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
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