Market Perspectives - November 2017

1. Market Perspective – November 2017
Experience Insight Impact
Overview: With third quarter (Q3) earnings season largely complete, it appears the S&P 500’s
sales and earnings growth trends continue to move in a constructive manner. Alongside
domestic growth is the sharp rebound of international corporate profit growth. This month, we
revisit corporate earnings and peer into future expectations.
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2. Corporate Earnings Rebound Continues
Experience Insight Impact
• Year-over-year, Q2
S&P 500 earnings
grew 7.2%, while
sales grew 5.5%.
• Since Q3 2016, sales
and earnings growth
have rebounded.
Forecasters expect
continued growth in
the mid-single digits,
which is a promising
sign.
Source: Bloomberg
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3. Earnings Were Generally Better Than Expected
Experience Insight Impact
The earnings this quarter were generally better than expected. 74% of S&P 500 companies have
reported positive EPS surprises (in aggregate 4.8% above expectations) and 66% have reported positive
sales surprises (in aggregate 1.2% above expectations).
Source: FactSet
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4. International Outperformed
Experience Insight Impact
After years of underperformance, earnings growth of international equities started to
exceed that of domestic equities.
Source: Bloomberg
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5. International Outperformed
Experience Insight Impact
For the first time in many years, earnings in Europe are exceeding expectations and are
expanding at a pace.
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6. International Exposure Helped Domestic Equities Too
Experience Insight Impact
Growth in the earnings and revenues of S&P 500 companies with higher international exposure
exceeded those of more domestic-oriented companies. The green bars represent the growth of
companies with sales of less than 50% in the U.S.
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7. A Weaker Dollar Probably Helped Stocks
Experience Insight Impact
The dollar index declined 9.4% from 12/31/16 to 9/30/17. Dollar weakness, considering that ~40% of
S&P 500 revenue comes from abroad (for companies with full geographic disclosures according to
S&P), was likely a positive factor in earnings performance. Moving forward, we must be cautious, as a
rebound in the dollar may negatively affect stocks.
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Source: Bloomberg

8. Earnings Growth Expected to Continue
Experience Insight Impact
Notwithstanding likely future revisions, earnings growth is expected to continue. Potential policy
tailwinds (e.g. tax reform) could add to the growth.
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9. Market Perspective – November 2017
Experience Insight Impact
Conclusion: The current bull market was accompanied by several years of negative earnings
growth. However, for the past year or so, earnings have rebounded, a trend that is expected to
continue. Moreover, the opportunity set in international markets appears attractive with earnings
growth advancing abroad. We remain flexible as we monitor these trends, as equity markets have
enjoyed a meaningful rally during this timeframe.
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10. Disclaimer
Experience Insight Impact
Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for
any specific person for any particular purpose. We utilize information sources that we believe to
be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee
of future performance; investing involves risk and may result in loss of capital. Consider seeking
advice from a professional before implementing any investing strategy.
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