The second-quarter results are in, and Wall Street loves what it’s seeing. After an impressive double-digit gain in the first quarter, the S&P 500’s earnings per share increased 10.8 percent through July after companies reported their numbers.
That marks the first time the index has posted two quarters in a row of double-digit gains since 2011, according to CFRA’s Lindsey Bell.
Bell also noted that growth in 2017 is now tracking at an impressive 11.1 percent, just 0.7 percentage points below estimates at the start of the year despite the uncertainty caused by ongoing political turmoil in Washington.
“While growth is still below the 11.8 percent expected at the start of the year, the trend is impressive, especially when considering historical patterns and the risks that remain,” wrote Bell. “This is the first quarter — since the third quarter of 2014 — that none of the 11 sectors reported a decline in growth.”
Information technology has been on fire this year, with stocks of companies such as Facebook and Apple leading the sector to a 21 percent gain. It is the fourth consecutive quarter that IT recorded double-digit growth, according to CFRA research.
That hasn’t happened since 2012.
To be sure, investors are nervous after President Donald Trump alienated Republicans and business leaders after his remarks following the violent protests in Charlottesville, Virginia, one week ago. That concern peaked on Thursday, weighing the Dow Jones industrial average in its 274-point plunge.
But for Edward Jones investment strategist Katie Warne, it’s all about the earnings. The strategist told CNBC that she’s forecasting solid earnings gains in the months to come.
“Investors are disappointed at the corporate input [in Washington],” said Warne, but we should see “reasonable if not strong results in the third quarter.”
“We do think we’ll see more volatility in stocks, more normal levels of volatility,” she added.
BMO’s Brian Belski also sees upward movement in the second half of the year.
“The 10.3 percent gain for the S&P 500 through July 31 is more than double its historical average for the first seven months of the year since 1950,” he wrote on Wednesday. “The question on most investors’ minds is whether or not this strength can continue.”
The strength of the U.S. stock market has sparked worries of an imminent pullback. Some believe that large-cap tech stocks may be too expensive and that the economy may be stuck in a bond bubble.
But BMO research reached a different conclusion.
“Stocks typically (but not always) build upon such gains at a moderate pace through year-end,” added Belski. “As a result, we are now closely monitoring our target models to determine if an upward revision is needed.”