U.S. companies are on pace to record their best slate of quarterly earnings in more than two decades as businesses capitalise on the triple cocktail of low interest rates, significant domestic stimulus and coordinated global economic growth.
Around 80% of the 87 S&P 500 companies reporting so far this season have topped analysts' forecasts, according to data from both Thomson Reuters I/B/E/S and FactSet, a pace that, if sustained, would be the best quarter for U.S. corporate reporting since 1994. S&P 500 companies are set to notch a 20% year-on-year rise in their collective bottom lines, as well, a figure that hasn't been seen since the final three months of 2010.
The earnings appear healthy, as well, with profit margins coming in at 11.1% for the reported quarter, the best since FactSet started tracking that data in 2008.
"In terms of sales, more companies (72%) are reporting actual sales above estimates compared to the five-year average," FactSet noted in a recent update. "In aggregate, companies are reporting sales that are 1.6% above estimates, which is also above the five-year average."
However, with key technology sector companies such as Google parent Alphabet (GOOGL) , Microsoft (MSFT) , and Advanced Micro Devices (AMD) , as well as social media groups Facebook (FB) and Twitter (TWTR) reporting this week, and sector behemoth Apple Inc. (AAPL) scheduled for May 1, much will of this season's ability to set new records and sustain the current global market rally will rest on tech's giant shoulders.
The NYSE FANG+ Index, an equal weight benchmark which tracks the moves of ten of the biggest and most active tech stocks in the world, gained 5% over first quarter and is up 9.36% for the year-to-date, mostly thanks to an incredible 63% surge for online streaming service Netflix Inc. NFLX, The sector's confidence, however, has been shaken by ongoing concerns over the use of private data and the end to the so-called "supercycle" in global semiconductor demand.
Apple, in particular, will need to convince investors that waning global smartphone demand, as well as persistent reports of tepid iPhone X take up, won't dent the bottom line of the world's biggest tech company and a firm that is responsible for 4% of total S&P 500 earnings and more than a fifth of the U.S. information technology sector.
Apple is expected to report earnings of $2.69 a share for the three months ending in March, its fiscal second quarter, according to the median FactSet estimate, a 28% increase from the same period last year but notably less than the $3.89 it earned in the final months of 2017.
Prior to that release, investors will first sift through 179 earnings releases -- including 12 Dow Jones Industrial Average constituents -- this week against a backdrop of rising government bond yields and expensively price stocks.
Global bond markets resumed their bearish tact Monday, taking benchmark 10-year Treasury notes closer to 3% for the first time in more than four years and threatens the strength of the current equity market really as it heads into the teeth of the U.S. corporate earnings season.
Benchmark 10-year notes traded as high as 2.99% in early European dealing while the dollar index, a measure of the greenback against a basket of six global currencies, to a near one-month high of 90.43. In fact, the current gap between 10-year government bond yields between the United States and Germany, the biggest economy in Europe, hit the highest level in 29 years Monday -- 2.36% -- as some of the global appetite for Treasuries waned amid concern over the fiscal indiscipline of the Republican-led Congress, which passed a $1.5 trillion tax cut late last year that has added notable pressures to the country's deficit.
FactSet notes, that S&P 500 stock valuations are holding at 16.6 times forward earnings, up from 16.4 times last week and well ahead of the 10-year average of 14.3 times.